As previously reported in the Hedge Fund Law Report, on August 3, 2009, the Securities and Exchange Commission (SEC) proposed its “pay to play” rules for investment advisers in Rule 206(4)-5 under the Investment Advisers Act of 1940, as amended (the Act).  See “SEC Proposes ‘Pay to Play’ Rules for Investment Advisers,” Vol. 2, No. 32 (Aug. 12, 2009).  On June 30, 2010, the SEC adopted Rule 206(4)-5 to protect public pension plans by deterring investment advisers from participating in “pay to play” practices, that is, practices wherein politicians encourage financial contributions from any person, political action committee or company, including hedge funds, in exchange for the chance to be selected as investment adviser for those plans.  The new rule has three essential elements, each of which is detailed in this article.  In a departure from the prior version of the rule circulated for public comment, the rule does not include an outright ban on investment advisers compensating a third-party solicitor to obtain governmental entities as advisory clients, provided, however, that the solicitor must register with the SEC and/or the Financial Industry Regulatory Authority (FINRA) (as an investment adviser or broker-dealer), and remain subject to pay to play restrictions.  In other words, the new rule allows hedge fund managers to continue using registered placement agents in the United States.  We summarize the key provisions of the new pay to play rule, focusing on those applicable to hedge fund managers and placement agents.