Eaton: SEC proposal could cause placement ‘demise’

An SEC proposal to ban interaction between third-party solicitors and government agencies, including public pensions, could cut off roughly 35% of capital raised by placement agents, according to a veteran fundraiser. In recent years, pensions have been a major source of capital for infrastructure.

Some 35 percent of capital placed by CP Eaton, a prominent placement agent, comes from US public pension funds, founder Charles Eaton said in an interview with sister website PEO today.

Charles Eaton

A proposal from the Securities and Exchange Commission to ban interaction between third-party solicitors and government entities, including public pensions, could spell “the demise of many of the placement agents that work on a broad basis” raising capital on behalf of general partner clients, Eaton said.

In recent years, public pensions have been a major source of capital for infrastructure investors in the US. Many large pensions, such as the $119 billion California State Teachers' Retirement System and the $191 billion California Public Employees' Retirement System, have in recent years made initial allocations and commitments to the asset class in an attempt to diversify their portfolios.

Eaton added that executives at other placement agencies have put forth even higher estimates of the percentage of capital placed from US public pensions –  some as high as 50 percent.

Eaton is leading a group of placement agents in a joint effort to lobby the SEC and other regulators to reconsider the placement ban, currently written into a proposed rule focused primarily at halting campaign contributions from fund managers to politicians who oversee pension assets.

The SEC is currently accepting comments on the proposed rule, titled “Political Contributions by Certain Investment Advisors”. To date several prominent alternative investment industry participants, including a portfolio manager from Stanford University’s endowment, have submitted comments arguing against the placement ban as currently written.

Eaton said he believes there is a misperception among some regulators that capital for private funds comes largely from a few extremely large public pensions. “We call on hundreds of [US public pensions],” he said. “It is a very diverse and broad audience.”

Critics of the SEC’s proposed rule are also arguing that if enacted, US public pension funds would be cut off from the opportunity to invest in many quality smaller and newer funds, many of which lack the financial wherewithal to themselves market to hundreds of public entities scattered across the US.
CP Eaton, founded in 1983, is based in Rowayton, Connecticut.