“When officers of the Illinois teachers’ pension system opted to put more than $1 billion under the control of a single financial firm, Grosvenor Capital Management, they touted the arrangement as a step toward greater efficiency: Grosvenor would be entrusted to manage a larger slice of the state’s hedge fund investments, a part of the portfolio that had previously been managed by a competing firm.
“But the deal, blessed by Illinois pension officials in late 2013, was distinguished by more than the simple consolidation of two managers into one. Grosvenor is run by Democratic Party financier Michael Sacks, a major campaign contributor to Chicago Mayor Rahm Emanuel and a prodigious fundraiser for President Barack Obama.
“The decision to retain Grosvenor and transfer more state pension funds to the firm was ratified by a board composed of officials appointed by then-Illinois Gov. Pat Quinn, a Democrat who had been the beneficiary of substantial campaign contributions from a political action committee, or PAC, that was partially run and financed by Sacks’ wife, Cari Sacks. Though Michael and Cari Sacks had since 1990 contributed to the Personal PAC, which finances candidates who favor abortion rights, the couple’s contributions more than quadrupled during Quinn’s tenure in office compared to the previous decade.
“In short, as the Sackses escalated their giving to a PAC that supported Quinn, his appointees signed off on shifting hundreds of millions of dollars to a financial management company run by none other than Michael Sacks. That decision was made even as Grosvenor was underperforming less expensive stock index funds. The pension system paid Grosvenor at least $3.2 million in fees in the year after the deal, state records indicate.
“This all unfolded despite federal rules designed to prevent campaign contributions from influencing how governments manage their money. The so-called pay-to-play rules explicitly bar financial executives who manage pension money from making campaign contributions to public officials who have authority over pension investments.
“Unlike Illinois’ own anti-corruption statute, the federal rules include so-called anti-circumvention provisions that seek to prevent end-runs around the law: Executives who are considered ‘covered associates’ under the rule cannot funnel campaign contributions through family members. Third-party groups such as PACs also cannot be used as conduits.
“International Business Times described the outlines of the deal to Greg Nowak, an attorney at Pepper Hamilton, a Philadelphia law firm that counsels corporations on compliance with financial regulations. ‘It raises the perception that the covered associate is attempting to circumvent the SEC's pay-to-play rule,’ he said, referring to the federal Securities and Exchange Commission. He added: ‘I would advise against campaign contributions of this type’…
“The Illinois Campaign for Political Reform’s David Melton said the mix of political influence, money and pension investments spotlights a wider problem in Illinois. ‘This appears to be another unfortunate example of the corrupting influence of big money and unlimited contributions in the politics of our state,’ he told IB Times.
“‘Pay-to-play’ should not be the basis for awarding state contracts.”
For entire article, Democratic Party Financier Got Big Illinois Pension Deal after PAC Contributions by Matthew Cunningham-Cook, David Sirota and Andrew Perez from International Business Times, click here.