Cuomo Gets Tough on PE Fund, Announces Assurance of Discontinuance
On Friday, Andrew Cuomo announced a "landmark agreement" with The Carlyle Group resulting from the alleged use of intermediaries to obtain investments from the New York State Common Retirement Fund. The forty-five page Assurance of Discontinuance (the "AOD"), issued pursuant to Executive Law section 63(15), centers around the use of placement agents to obtain public pension fund investments, a practice the attorney general deems to be fraught with abuse.
In essence, the AOD states that an aura of suspicion is created when campaign contributions are made to the New York State Comptroller, the elected official with oversight powers over the Common Retirement Fund, currently valued at $122 billion. These contributions are made, albeit indirectly, in exchange for investment commitments.
Cuomo found that such conduct is contrary to the central goal of ensuring that public pension fund assets are protected from manipulation and invested solely in the best interests of public pension fund beneficiaries. Such conduct creates the appearance of "pay to play" practices that undermine the public's confidence in state government.
According to the AOD, Carlyle - which obtained about $730,000,000 in investment commitments -cooperated with the investigation and approves of reform efforts. In connection with the investigation, Carlyle agreed to pay the State of New York $20,000,000 and to comply with the Public Pension Fund Reform Code of Conduct, which requires the following:
- A ban on placement agents and lobbyists;
- A ban on campaign contributions to avoid pay to play;
- Increased transparency through disclosure;
- A higher, fiduciary standard of conduct in connection with public pension fund business; and
- Strengthened conflicts of interest policies.
Currently, the Code of Conduct applies only to Carlyle. Federal or state legislative intervention could make the Code of Conduct binding industry-wide, though there could be changes to the language if the Code works its way through the legislative process. Even though non-binding, the Code of Conduct serves as a warning to other private equity funds and hedge funds, and such funds should consider the appropriateness or necessity of voluntary compliance with the mandates.
