October 3, 2009
3 October 2009
B. Jack Miller
Comments on File Number S7-18-09
Dear SEC Chairman and Board Members
Thank you for inviting comments to the draft on "Political Contributions by Certain Investment Advisors". My remarks relate primarily to Pay-to-Play restrictions in Section II A.
By way of background, I have managed institutional pension investments for thirty years. My experience includes Chief Investment Officer positions for benefit plans at Eli Lilly and Philip Morris before retiring in 2009 as a senior executive at General Motors Asset Management. These roles shared a number of common characteristics -- large plan assets, active management, and diversified asset allocation across public and private asset classes.
Over time, I have worked with a number of Placement Agents (PA's) who helped with due diligence in selecting private equity and real estate partnerships. They have shown themselves to be knowledgeable, ethical and supportive. While "rogue agents" undoubtedly exist in all sectors, I believe them to be rare and avoided by plan sponsors who take their fiduciary responsibilites seriously.
Placement agents provide important services for small and medium-sized plans (under $5 billion) who have few staff and little specialized experience in private asset classes. Large pension plans also benefit because PA's provide access to emerging and specialized partnerships.
PA's help capital creation and job growth by providing GP's of small and emerging partnerships access to institutional investors. Many partnerships are too small to have their own marketing staff and rely on third party PA's to introduce them to investors.
Admittedly, my experience is solely with corporate pension plans where political contributions play no role. A set of reasonable and prudent guidelines for marketing to State and municipal plans, however, makes sense. They represent no barrier for ethical PA's but discourage overt and covert pressure for political contributions and other favors to gain influence over public plan RFP's.
To encourage fiduciary behavior and discourage unethical conduct by any party, I support a two year "standstill" as well as a two year "lookback" for contributions by any principal or employee of a third party marketer AND MEMBERS OF THEIR IMMEDIATE FAMILIES. In addition, Private Placement firms (like other institutional investment firms) should register with the SEC under the Investment Advisor Act. I also view the voluntary Code of Conduct proposed by certain Placement Agents as a positive step but feel that enforcement should have teeth.
To assure transparency, I support annual disclosure of political contributions to PAC's, individual candidates, political parties and any other political entity. PA's, investment advisors, and consultants should include full disclosure in their SEC filings and marketing materials of all revenues from firms they represent (commissions, placement fees, management fee-sharing and any participation in the GP's "carried interest").
In summary, to create a level playing field, I believe that all third parties -- Private Placement agents, Investment Banks, Funds-of-Funds, Consultants -- who market to pension plan sponsors should operate under the same disclosure and compliance rules. Seeking to ban Placement Agents or any other party addresses only one side of the problem and is not a reasonable course of action.
B. Jack Miller