Pay to play rule
A US rule that limits advisers from earning fees from a government client after certain political donations.
If the manager or certain employees give to officials who can influence a public plan, the adviser can be barred from receiving compensation from that plan for two years. It also restricts paying third parties to solicit government investors.
The rule applies to SEC-registered advisers, exempt reporting advisers and foreign private advisers. Contributions by covered associates count, and new covered associates can bring their past donations with them, with a look-back of up to two years.
De minimis exceptions allow contributions of up to $350 per election to a candidate the person can vote for, or $150 per election otherwise. Many states and cities have their own pay to play rules on top of the federal rule.
Worked example
A partner at a fund donates $1,000 to a candidate for state governor, who would appoint trustees of the state pension. If the candidate is an official covered by the rule, the fund's adviser cannot receive compensation from that pension for two years, even if the pension invested years earlier.
Common questions about pay to play rule
How much can a fund manager donate to a political campaign?
Under the SEC rule, covered associates can give up to $350 per election to a candidate they can vote for and $150 per election to others without triggering the two year time out, if the official is covered. State and local rules may be stricter.
Does the pay to play rule apply to exempt reporting advisers?
Yes. It applies to registered advisers, exempt reporting advisers and foreign private advisers, so venture managers raising from public pensions need to check their team's political giving.