When Dallas buyout group HM Capital Partners and three other firms paid $4.5 million to settle New York Attorney General Andrew Cuomo's pay-to-play probe and abide by his code of conduct earlier this month, it raised the stakes in the face-off between the Securities and Exchange Commission and the private-equity industry. The quad join the Carlyle Group and Riverstone Holdings, other buyout firms that got caught up in a fundraising scandal involving political heavyweight Dick Morris and the New York State Common Retirement Fund, in refraining from using third-party fundraising professionals, or "placement agents" as they're known in private-equity parlance, to raise capital from pension funds.

In short, the SEC's Advisers Act Rule 206(4)-5 proposal, like Cuomo's conduct code, is designed to eliminate political contributions to officials that could influence investment decisions from public pensions. One measure within the regulator's proposal, however, stands to undercut the sea legs of an entire industry that has raised billions of dollars of pension money for buyout partnerships for almost three decades. It would restrict private-equity firms from hiring placement agents to solicit capital from government entities.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.