TO: Jonathan G. Katz, Secretary
Securities and Exchange Commission

FROM: Gary Findlay

SUBJECT: Proposed Rules on Pay to Play (File No. S7-19-99)

DATE: August 17, 1999


In the concluding paragraph of the "Background" section of the proposed pay to play rules, the following statement is made: "Some have delegated the selection of investment advisers to professional staff members, aiming to insulate the selection process from considerations of campaign contributions." (Emphasis added.) The footnote associated with that statement referred to the Missouri Investment Adviser Selection Policy, implying that our Board's policy on adviser selection was adopted for the purpose of avoiding pay to play issues.

When the pay to play document was being developed, I received a call from Robert Plaze of your staff. He wanted to confirm his speculation that our Board's manager selection policy had been adopted to address pay to play issues. I assured him that pay to play had nothing to do with the Board's decision but rather the policy was adopted as part of an overall ongoing effort to develop a professional business decision making model. Specifically, the Board develops the broad asset allocation policy and strategic within class policy and then delegates to the staff and asset consultant responsibility for implementation. Furthermore, a portion of staff and consultant compensation is tied to successful implementation of the Board's policies. This model allows the Board to focus attention on those areas which will have the greatest overall impact on risk and return while leaving the details of implementation to a motivated group of investment professionals. Needless to say, I was very disappointed that Mr. Plaze ignored my comments and that the proposed rules convey the sentiment of his initial speculation. I fully expect that the misstatement will be corrected in the final report.

The MOSERS' board consists of three members appointed by the governor, four members appointed by the leadership of the general assembly, one state-wide elected official, and three members elected by the membership of the system. Despite this political appearance, I think that concrete evidence of the Board's character and professional approach to money management may be seen in something which happened within six months of my arrival in 1994. The investment staff and consultant recommended terminating business relationships with four Missouri based money management organizations (one of which was the largest financial institution in the state). This move was part of a plan to restructure and streamline the investment process to reduce fees and align the portfolio with revised allocation targets.

The pay to play rules, as proposed, will, if adopted, address a problem which is infinitesimal in the grand scheme of things. However, if that is needed as a first step, then that is a call you must make. The much bigger question which remains is when will the SEC address the insidious transactions which pervade the industry and which make pay to play (as described in the proposed rules) look more like child's play? I am speaking here of soft dollar abuses and relationships between money managers and investment consultants (gatekeepers), which lead to kickbacks, self dealing, and extortion that go completely undisclosed and cry out for regulatory attention.

If at some future point you are interested in addressing these problem areas, I will be happy to provide you with details regarding disclosures which will get at the issues. However, given your intimacy with activity in the investment community, I have to believe that SEC officials are already knowledgeable about the problems and the types of disclosures which will lead to solutions through the creation of a much better informed consumer community.

cc: MOSERS' Board of Trustees
Arthur Levitt, Chairman, SEC
Robert Plaze, Division of Investment Management, SEC