Amid the continued debate over the SEC’s proposed pay-to-play rules there are some proponents who argue that oversight of pay-to-play practices must reach beyond the agency’s current recommendations. So even while many commentators oppose the rules on grounds that they sweep too broadly and impair competition, (click here to read comment letters) the former head of the SEC, Arthur Levitt, has declared that President Barack Obama should empower a “blue ribbon” panel to investigate pay-to-play practices of public pension funds.
The call for a probe into the public pension fund practices comes at a time when certain pension funds are examining their own investment processes and making positive changes, such as the California Public Employees’ Retirement System. However, the general concern among regulators and funds is that choices about who should invest public monies are influenced by factors like money and politics rather than an investment manager’s merits and cannot be subject to self-regulation. Levitt said in an interview on Bloomberg Television that public pension fund boards should not make investment decisions, but should cede such power to a professional staff.
The SEC’s proposed rules are meant to address those concerns. The SEC proposal is modeled on the rules proposed by the agency in 1999, when Levitt was chairman. Levitt has explained, “We had a lot of pressure [against the proposal in 1999].” The pressure came from Congress, Levitt said. “When you talk about campaign contributions, Congress gets very sensitive. They feel that’s one step away from their own activities.” Levitt’s panel would go beyond the SEC proposal and would investigate the public officials who sit on boards of state pension funds, highlight conflicts and recommend “best practices.”