Dear Commissioners:
I am writing to express concern about the partial ban on use of placement agents
contained in SEC draft rule-making AI-2910. I believe that there is strong evidence that
both public pension system investors and private equity firms, particularly smaller ones,
will be harmed if the proposed placement agent ban is implemented and that the
Commission should therefore reconsider its proposed rulemaking with respect to
placement agents.
I am writing on behalf of New Mountain Capital LLC. We are an established alternative
investment firm and manage approximately $7.3 billion of private equity commitments.
Many of our investors are public pension systems, and their investments comprise the
majority of our private equity investment capital. Like most funds, 1 New Mountain
utilized a placement agent for our most recent private equity fund-raising in 2008. We
have also used a placement agent for prior funds. New Mountain was a “start-up”
company less than ten years ago.
Institutional investor opinion offers the strongest evidence of likely harm from the
proposed rulemaking. Preqin, a respected private equity research firm, recently
commissioned a survey 2 of institutional--and particularly public pension fund--investors
in private equity in order to gauge their reaction to the proposed rule-making. Among its
findings, the survey concluded that 85 percent of public pension fund respondents believe
that a placement agent ban would harm the fund-raising ability of smaller firms relative
to larger ones. Presumably, respondents reach this conclusion because large firms
generally have in-house fundraising teams while smaller ones are more reliant on
placement agents’ outsourced fundraising capability. In New Mountain’s case, this
conclusion rings true. At the firm’s inception, it had no in-house fund-raising capability,
none of its employees had ever led a fund-raising, and it’s therefore likely that the firm
would not have been able to raise an institutional fund without the assistance of a
placement agent.
No investment strategy appeals to every prospective investor, and New Mountain’s
private equity strategy, which emphasizes business-building and low leverage, is no
different in this respect. Placement agents have played a key role in helping us to
identify the subset of prospective investors, among many thousand prospects, whose
investment goals and strategy make them reasonably likely to invest with us. In this role,
placement agents perform a service that is fundamentally equivalent to that provided by
other investment bankers or brokers. Yet the SEC’s rule-making record offers no
rationale for distinguishing between the role of placement agents, which the Commission
1

Prequin Research Report: Potential Effects of AI-2910 Overview of Placement Agent
Usage. August 2009. www.preqin.com
2
Ibid.

 proposes to ban from interacting with public pension systems, and the role of stock
underwriters, who remain unaffected by the rule but who provide exactly the same
placement services with public pension systems on behalf of a different type of security.
Since its inception, New Mountain estimates that its investments have created
approximately 7,000 net new jobs in the U.S. economy, and that the average wage of
those employees substantially exceeds the U.S. average. Placement agents have played a
key role in the capital formation process that resulted in that job creation. The
Commission would be well served to respect the legitimate role of placement agents in
capital formation rather than to make them a scapegoat.

Respectfully submitted,
Michael Flaherman
Managing Director