The Municipal Securities Rulemaking Board is continuing to tighten the limits on what placement agents can do as part of their fundraising activities for private funds. Dodd-Frank created a new category of “municipal advisors” and placed them under the regulatory oversight of the MSRB. If your fund uses a placement agent and has government-sponsored investors or is seeking government-sponsored investors then they need to be registered with the MSRB and you need to pay attention to these rules.
The MSRB is proposing a new limitation in Rule G-20:
(a) General Limitation on Value of Gifts and Gratuities.
(ii) Municipal advisors. No municipal advisor shall, directly or indirectly, give or permit to be given any thing or service of value, including gratuities, in excess of $100 per year to a person other than an employee or partner of such municipal advisor, if such payments or services are in relation to the municipal advisory activities of (including but not limited to solicitation of potential engagements on behalf of) the municipal advisor.
(b) Normal Business Dealings. Notwithstanding the foregoing, the provisions of section (a) of this rule shall not be deemed to prohibit occasional gifts of meals or tickets to theatrical, sporting, and other entertainments hosted by the broker, dealer, municipal securities dealer, or municipal advisor; the sponsoring by the broker, dealer, municipal securities dealer, or municipal advisor of legitimate business functions that are recognized by the Internal Revenue Service as deductible business expenses; or gifts of reminder advertising; provided, that such gifts shall not be so frequent or so extensive as to raise any question of propriety.
Amendments to Rule G-8 and Rule G-9 would require a municipal advisor to keep a record of each gift or gratuity given and keep those records for six years.
Even though the MSRB is seeking comments on the proposed changes, I’m skeptical they will be changed. They are merely taking the existing limitations for municipal securities dealers and porting them over to the new class of municipal advisors.
From the fund managers perspective, it would make sense to make sure that your placement agent is complying with the rules and to get copies of their records.