Recent amendments to the Political Reform Act and the Government Code, prompted in part by the Alfred Villalobos scandal, and similar legislation in New York and other states, require placement agents to register and be regulated as lobbyists. Assembly Bill 1743, effective Jan. 1, applies to individuals who market investment services to California public retirement systems and the companies that retain their services. These retirement systems control hundreds of billions of dollars of assets, which are managed by hundreds of money managers. Placement agents serve an important function in the capital-formation process as intermediaries between large pools of capital and the money managers. The new amendments are important because their broad reach and the new registration, compliance and penalty provisions that now apply to placement agents will likely have a significant impact on how investment firms solicit capital from these retirement systems.

AB 1743 defines “placement agent” to include any individual, whether or not located in California, “hired, engaged or retained by, or serving for the benefit of or on behalf of” an “external manager” who “acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets or services” of the external manager to any California public retirement system or certain investment vehicles of which a system is the majority investor.

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