Two Illinois pensions won’t review managers for Rauner donations

The Illinois State Board of Investment launched a review of its investment managers earlier this month after several reports cited donations to former GTCR executive and Governor-elect Bruce Rauner as possible violations of state pay-to-play rules, Executive Director William Atwood said.

“We’re contacting firms that we’ve been called about, who we’ve been told made contributions (to state campaigns),” Atwood said. 

Atwood plans to report on the review’s findings finding at ISBI’s Dec. 5 meeting, he said.

While ISBI requires managers to disclose any possible conflicts of interest, including political contributions, the $45.3 billion Teachers’ Retirement System does not require managers to disclose donations to political campaigns, spokesman Dave Urbanek told Buyouts.

“That’s injecting a level of politics into an investment decision, when your goal is to make the most money for your investors,” Urbanek said. “To say that our board should delve into the political contributions of potential managers is way out of bounds. That would politicize our board.”

Unlike the State Board of Investment, the State University Retirement System and Teachers’ Retirement System did not adopt the pay-to-play rules outlined in the state’s procurement code that prohibit companies and executives that do business with Illinois from contributing to candidates running for positions that award state contracts.

SURS cites the pay-to-play statute in its requests for investment proposals; however, the statute “may or may not apply to SURS investment managers or consultants,” according to a sample RFP available on its website. The RFP encourages potential managers to “comply with this section if the investment manager or consultant deems it appropriate.”

“When SURS issues a RFP, this statute is cited. It is the responsibility of the responding party to ensure that they comply with the statute,” SURS spokeswoman Beth Spencer said in an email. “We advise potential managers to be familiar with the Illinois Procurement Code and to make decisions accordingly.”

None of the managers listed in SURS’ private equity portfolio appear to have donated to Rauner’s campaign.

ISBI adopted pay-to-play rules to eliminate possible conflicts of interest with its board, which is comprised of four elected officials and five governor appointees. Illinois elected officials do not hold seats on the SURS or TRS boards, but the state governor does appoint four of SURS’ 11 board members and six trustees to Teachers’ Retirement System’s 13-member board.

Problematic donations

Rauner’s gubernatorial campaign raised more than $66 million through the election, including at least $2.25 million as of Sept. 19 from individuals that work in the private equity and venture capital industries, according to an analysis of state election data by Buyouts.

Teachers’ Retirement System’s $5 billion private equity portfolio includes several managers that donated to Rauner’s campaign. James Healy, an executive officer of Sofinnova Venture Partners VIII, donated $2,500 to Rauner’s campaign. The retirement system committed $8.2 million to the Sofinnova fund in August 2011. Other retirement system managers who donated include Charles Moore of The Banc Funds Company, who donated $1,000, and James Hickey of Vista Equity Partners, who donated $350.

Vista Equity is also one of ISBI’s fund managers. It is unclear if Hickey disclosed his contribution to Rauner to the Board, Atwood said. None of the donors responded to a request for comment.

It is not clear if those donations violated SEC rules that prohibit investment advisers from receiving compensation from state or local pensions for two years if they contribute more than $350 to a political campaign for a position that influences the selection of investment advisers or managers.

In June, TL Ventures settled with the SEC for roughly $300,000 after an associate contributed $2,500 to a Philadelphia mayoral candidate and $2,000 to a Pennsylvania gubernatorial candidate. Both positions appoint members to retirement boards that invest in TL Ventures.

“The enforcement of the political contribution reporting law is the responsibility of the Securities and Exchange Commission,” Urbanek said in an email. “Money managers are required by federal law to maintain records of campaign contributions for inspection by the SEC. TRS money managers must comply with all applicable federal and state laws and regulations. There are no discussions or plans underway to replicate the federal review authority.”