The SEC wants to scrap a key anti-corruption rule targeting private equity

SEC Proposes Rescinding Pay-to-Play Rule for Investment Advisers

The Securities and Exchange Commission has proposed rescinding a rule that bars investment advisers from receiving compensation for managing public pension and other government funds for two years after making political contributions to officials who oversee those funds. The proposal, published earlier this month, would eliminate restrictions adopted in 2010 under the Investment Advisers Act.

The rule, commonly called the pay-to-play provision, was issued after several enforcement actions in the 2000s involving donations and payments by private equity firms and other advisers to state and local officials. It applies to advisers seeking to manage assets for government entities, including public pension plans. Public pension funds hold roughly $9 trillion in assets, and pension funds overall account for more than 40 percent of assets under management at private equity firms.

SEC Chairman Paul Atkins stated that the rule has imposed compliance costs on firms, including decisions by some advisers to prohibit all political contributions by employees even though the rule permits limited donations between $150 and $350 per election. Atkins said the restrictions have produced penalties for small or inadvertent contributions and have limited political speech. The proposal notes that firms may adopt their own policies to address conflicts and indicates the agency is considering guidance on such measures.

Benjamin Schiffrin, director of securities policy at the think tank Better Markets, said the rule has prevented selection of advisers based on contributions rather than merit. He cited the SEC’s 2010 release language describing the rule’s purpose as combating pay-to-play arrangements.

The proposal would leave in place antifraud provisions under the Investment Advisers Act, which the SEC states are sufficient to address improper arrangements. The agency is accepting public comments for 60 days.

Historical cases cited in support of the original rule include a 2009 matter involving Apollo Management and a former CalPERS board member. The board member accepted more than $40 million from the firm and directed approximately $3 billion in CalPERS investments to it, while also directing gifts valued at least $250,000 to the system’s chief executive. Apollo later reported losses of at least $475 million on certain CalPERS investments according to the pension system’s 2009 accounting.

In the same period, Carlyle Group reached a $20 million settlement with authorities over more than $13 million in payments to an aide to the New York state comptroller that secured about $730 million in state pension investments. Quadrangle Group settled claims that an executive paid more than $1 million to the same aide to obtain $100 million in investments; the executive also purchased distribution rights for a film produced by New York’s chief investment officer. Elliott Broidy, founder of Markstone Capital, pleaded guilty to paying nearly $1 million in gifts to secure a $250 million New York pension investment.

Recent enforcement actions have continued under the current rule. In February, a judge found that two members of Ohio’s teacher pension board had acted as agents for an investment firm seeking business from the $103 billion plan. Two executives at Iowa’s largest public pension fund left their positions this spring after misconduct allegations. SEC data show a decline in cases involving public finance matters, from 97 actions in 2016 to seven in 2025.

Private equity returns have trailed broad equity indexes in recent years. A McKinsey analysis reported average private equity fund returns of about 7 percent from 2023 through 2025, compared with 18 percent for the S&P 500 over the same period.

The SEC proposal does not alter existing contribution limits under federal election law or state rules that may apply to advisers. Some firms already maintain internal policies restricting political donations by personnel who work on public fund business. The agency has not published quantitative estimates of compliance costs or the number of enforcement actions brought solely under the pay-to-play provision in its current proposal.

The rule contains a de minimis exception allowing covered employees to contribute up to $350 to a candidate per election, or $150 if the candidate is running for office that oversees the adviser’s business. Firms that have adopted blanket contribution bans have done so voluntarily rather than under a requirement of the rule itself.

If rescinded, the two-year compensation bar would no longer apply, though advisers would remain subject to general fiduciary and antifraud obligations when dealing with public clients. The commission has not indicated a timeline for a final decision.