Illinois Gov. Rauner Rebuffs Claims of Politics Influencing Pension Investments

The Illinois State Board of Investment – the entity that manages investments for three of the state’s smaller pension systems – recently voted to shift $697 million from active managers into index-type vehicles.

Opponents say Rauner and his appointees had an ulterior political motive, because the strategy shift required divesting almost $70 million from a union-run investment firm, despite strong returns.

But Rauner’s side says they are simply seeking more efficient, low-cost investments that track markets.

From the Chicago Sun-Times:

In line with Rauner’s anti-organized labor stance, one of the managers the board dumped was Ullico, a union-owned investment firm that lends money to construction projects that agree to hire union labor.

Unlike the three other firms that the Rauner appointees voted to terminate, Ullico wasn’t fired for “underperforming” on investment returns.

Rather, the company had been placed on the state pension board’s “watch list” because too much of its portfolio — 52 percent — was being held in cash, waiting to be lent. Ullico’s returns, though, had been slightly better than those of investment funds it was measured against, board records show.

[…]

The money invested with Ullico will be transferred to Garcia Hamilton & Associates, a Texas firm that plans to invest it in a less-complicated, fixed-income fund. That company will charge fees significantly lower than Ullico’s on the returns it produces — from .78 cents on the dollar to .09 cents.

Fees also will be cut as a result of the board’s decision to withdraw its investments in funds managed by the other three money managers: Ariel Investments, Herndon Capital Management and Wellington Management. In all, the board paid nearly $2.3 million in fees on all four deals last year, including $433,774 to Ullico.

Those fees are expected to plummet to $218,000 with their transfer into stock and bond index funds designed to track the financial markets.

The Board of Investment oversees $15.3 billion for the Illinois State Employees Retirement System, the General Assembly Retirement System and the Judges’ Retirement System.

Photo by Tricia Scully via Flickr CC License