Tag: SEC rules

New Jersey Bill, Now on Christie’s Desk, Would Expand Pay-to-Play Rules for Pension Investments

shaking hands

With all the drama surrounding New Jersey Gov. Chris Christie’s latest round of pension changes, one big pension-related development has been overlooked: on Monday, state lawmakers approved a bill that would expand pay-to-play rules as they relate to pension investments.

The bill, which would increase transparency around fees paid to private investment managers, was sent to Christie’s desk on Monday.

More from Philly.com:

[The bill] would expand restrictions on investments of state pension funds with outside money managers who donate to national political committees.

The legislation also would require the state Treasury Department to regularly publish reports disclosing fees paid to private managers who invest state pension funds.

Pay-to-play rules already prohibit the Division of Investment from awarding contracts to firms or investment managers who have donated to New Jersey political parties or campaigns in the preceding two years.

A 2010 federal law imposed a similar ban. Under that law, the Securities and Exchange Commission in June ordered Wayne-based TL Ventures Inc. to repay $250,000 in pension fees collected from Philadelphia and Pennsylvania after learning the firm’s founder had donated to Mayor Nutter and then-Gov. Tom Corbett.

But managers can still donate to national committees such as the Republican Governors Association or Democratic National Committee, which can spend money on and influence state politics. Legislation passed Monday by the Assembly on a 53-15 vote would close that loophole by extending the State Investment Council’s pay-to-play regulations to cover investors’ donations to national political committees.

The bill passed the Senate in October on a 25-8 vote, with seven abstentions.

Lawmakers believe the SEC pay-to-play rules are too lenient.

State pension officials, however, say the rules could harm the fund’s alternative investment portfolio; the fee disclosure requirement runs the risk of dissuading some investment managers from doing business with the fund.

Alternatives account for 28 percent of New Jersey’s pension investments.

 

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Firms Managing Illinois Pension Money May Have Skirted Pay-to-Play Rules By Donating To Rauner Campaign

Bruce Rauner

Over the course of his campaign, Illinois governor-elect Bruce Rauner accepted contributions from executives from firms that manage portions of the state’s pension money, according to a new report from David Sirota.

Those contributions may violate SEC pay-to-play rules, under which investment firms can’t make donations to politicians that have any influence—direct or indirect—over the hiring of firms to handle pension investments.

As Illinois governor, Rauner will have that influence – the governor has the power to appoint trustees to the state’s pension boards.

More from David Sirota on the donations:

During his gubernatorial campaign, Rauner raised millions of dollars from executives in the financial sector — and, despite the pay-to-play rule, some of the money came from executives at firms affiliated with funds that receive state pension investments. That includes:

– $1,000 from Mesirow Financial senior managing director Mark Kmety and $2,000 from Mesirow Financial managing director David Wanger. ISBI’s 2013 annual report lists Mesirow Financial as a hedge fund-of-fund manager for the pension system, and lists $271 million in holdings in Mesirow investment vehicles. In an emailed statement, a Mesirow spokeswoman told IBTimes that a separate branch of Mesirow works with the Illinois pension system and that therefore “we do not believe these contributions violate the pay to play laws.” Neither Rauner donor from Mesirow Financial “has any relationship with and/or receives any compensation from any state entity, nor do they pursue state business,” she wrote.

– $2,500 from Sofinnova general partner James Healy. TRS lists Sofinnova as a private equity manager. The system’s 2013 annual report says the firm manages $8.1 million of state pension money, and was paid more than $900,000 in fees that year. In June, TRS committed to invest another $50 million of state pension cash in Sofinnova. Healy did not respond to IBTimes’ interview request.

– $5,000 from Northern Trust’s Senior Vice President Brayton Alley. Illinois TRS lists Northern Trust Investments as an equity manager. The system’s 2013 annual report says Northern Trust manages $2.3 billion of state money, and made $548,000 in fees from the system that year. A spokesman for the firm told IBTimes, “We are aware of the obligations under various Illinois and federal laws and regulations” and “we are unaware of any violation to such requirements.”

– $9,600 from employees of the real estate firm CBRE. The 2013 annual reports of TRS and ISBI show a combined $184 million worth of state pension investments in CBRE investment vehicles. A representative for CBRE told IBTimes that the employees are not covered by the SEC rule because they are not involved in state pension business and not employed by the subsidiary of CBRE that does pension investment work.

– More than $90,000 in in-kind contributions from John Buck of the John Buck Company, which is listed as an investment manager for TRS. A spokesman for TRS, David Urbanek, told IBTimes that the pension system’s investment in the John Buck Company “is now in wind-down mode” and added that “the company is no longer actively managing TRS money.” A representative for the John Buck company said, “We do not manage money for TRS.”

While some of the contributions are relatively small, the SEC recently prosecuted its first pay-to-play case over donations totaling just $4,500. SEC sanctions can be strong: The rule can compel investment managers to return all fees they have collected from the pension systems after the political contributions were made.

Illinois state law also restricts contributions from state contractors to candidates for governor, though the executive director of ISBI, William Atwood, told IBTimes that the pension systems are exempt from the statute.

Specifics of the SEC rule in question, as explained by law firm Bracewell & Giuliani:

Rule 206 (4)-5, which was adopted in 2010, prohibits investment advisers from providing compensatory advisory services to a government client for a period of two years following a campaign contribution from the firm, or from defined investment advisers, to any government officials, or political candidates in a position to influence the selection or retention of advisers to manage public pension funds or other government client assets. Some de minimus contributions are permitted, topping out at $350 if the contributor is eligible to vote for the candidate, and the contribution is from the person’s personal funds.

Read Sirota’s entire report here.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

New Jersey Lawmaker Pushes For Stricter Pay-To-Play Rules For Pension Investments

Two silhouetted men changing hands in front of an American flag

SEC rules prevent pension funds from investing with firms that have made political contributions to politicians with any control over the pension fund’s investment decisions.

But a New Jersey Senator wants the state to go even further. Reported by NorthJersey.com:

The law that restricts the state pension fund from investing in firms whose investment managers make political contributions to New Jersey candidates should be expanded to include donations to national political groups, a legislator said Wednesday.

Sen. Shirley Turner, D-Mercer, announced her intentions to broaden the state’s pay-to-play law a day after the Division of Investment confirmed the pension system had sold its stake in a venture capital fund with ties to a Massachusetts gubernatorial candidate who donated to the New Jersey GOP.

[…]

When the pension system approves an alternative investment — including venture capital firms and hedge funds — those firms are required to fill out disclosures listing the managers of the particular fund New Jersey is investing with and whether those individuals have made political contributions. But the state’s conflict of interest law does not cover political donations to groups outside New Jersey, like the Republican Governors Association, which Governor Christie heads.

“The method of investment should be selected based on performance and merit, not because of campaign contributions and investments should be made in the best interests of our retirees,” said Turner, whose district includes a significant number of state workers, said Wednesday in a statement. “There shouldn’t be even the appearance of political favorites.”

This is a hot-button issue in New Jersey. One union, the New Jersey AFL-CIO, filed an ethics complaint last week asking whether political donations have influence pension investments.

The issue was also raised at the meeting of the State Investment Council on Tuesday.

 

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