October 6, 2009
-Dear SEC Chairman and Board Members
I would like to comment on the referenced draft rule regarding certain investment advisors, specifically the provision that would ban the use of third party marketers (TPMs) and unaffiliated Private Placement Agents (PPAs) from representing asset managers who provide investment services to State and Local Government pension plans (public plans).
Currently I am the CEO of Promark Global Advisors (fka General Motors Asset Management.) Ive spent 30 years in the investment business and have been the Chief Investment Officer and a fiduciary for large pension funds (Virginia Retirement System and General Motors). I also served as a board member and advisor to several tax-exempt plan sponsors where I have fiduciary responsibilities. Ive provided investment education and regulatory guidance for the corporate pension fund industry. During my career I have been personally involved with entrusting billions of dollars of pension assets to fund managers who invested across a very broad range of strategies and asset classes.
As has been pointed out by others, many pension plan sponsors operate with very lean staffs and limited resources, especially in the public fund sector. In this regard, advisors including consulting firms, banks, broker-dealers, private placement agents or third party marketers can play an essential role in canvassing the vast arena of investment opportunities and culling through to extract those that may have potential and meet the particular needs of the individual funds they work with. In this regard, most pension fund investors develop a number of respected and trusted advisors who act as helpful intermediaries in helping them to sort through the large and complex array of investment opportunities and asset managers.
Banning the use of TPMs and PPAs with respect to public pension funds, as provided for in the proposed rule, seems an overreaction to what is most certainly a very serious situation. In addition to being a serious impediment to small and unconventional asset managers who seek access to these funds, I also believe it does not solve the root of the problem. Additionally, I also believe that restricting the ability to raise capital by small entrepreneurial firms would be detrimental to the asset management industry which itself thrives on innovation.
While there is obviously a need to police the activities of everyone involved in the management of public assets, I would advocate a more holistic approach. This should include stricter governance rules in order to police the activities of these intermediaries along with much needed reform of the governance of the funds themselves. You should not just focus on one side of the issue
You have the chance to put in place meaningful change with this proposal but I suggest that you should expand it to consider all aspects of needed reform. I have experienced firsthand a public fund that grappled with its own conflict issues many years ago. A review of the governance system that was put in place in Virginia in the early 1990s would show a remarkable system of checks and balances put in place to ensure that conflicts of interest have been minimized.
I commend your efforts to focus on and bring meaningful oversight to what is arguably the greatest risk to federal, state and local taxpayers today and far into the future. Measured, thoughtful reform can have an incredible impact on the ability of the public fund system and sponsors to meet their obligations to the taxpayers and beneficiaries. I reiterate my caution, however, to take this opportunity to make meaningful reform and not fall prey to quick fixes, such as outright bans as suggested by the current draft. I believe in this manner the industry that is so important to many of us, will be well managed into the future.