SEC Grants Rare Exemptive Relief from Pay-to-Play “Time-Out” Provision

In what may be a case of first impression, the SEC recently granted exemptive relief from Rule 206(4)-5(a)(1) of the Investment Advisers Act of 1940, the “time-out” provision of the pay-to-play rule. In general, Rule 206(4)-5(a)(1) prohibits a registered investment adviser from providing investment advisory services for compensation to a government entity within two years after an adviser or any of its covered associates contributes money to an official of the government entity.

A registered investment adviser that manages a private fund requested the exemptive relief. Three of the investors in the fund are Ohio pension plans. The plans’ board of trustees oversees investment decisions and the Treasurer of the State of Ohio appointed one of the trustees.