SEC: Killing an Ant with a Bazooka

Yesterday, the SEC proposed new rules regarding “Pay-to-Play” practices. While some additional oversight makes sense in light of recent scandals, there is concern about other provisions such as the one prohibiting placement agents. This kind of regulation is an over-reaction that could have a big net-negative impact. Funds of all shapes and sizes use placement agents to assist in raising a new fund. Without placement agents, some good new funds will die on the vine. That’s not good for society as a whole. Existing funds would have to invest more of their management team’s time in creating new funds. That isn’t the best use of their time when they could be using that time to fund new companies and create new jobs. Again, bad for society as a whole. Finally, these proposed regs don’t solve the problem. The problem is pension fund managers allegedly taking bribes or kickbacks. Well, a fund manager could try to bribe these officials just as easily as a placement agent. To solve the problem, you need to monitor compensation or perks given to pension fund managers, not kill off the intermediary.