(March 22, 2010) – State Treasurer Timothy P. Cahill has been criticized for receiving contributions from across the country from real estate lawyers, property managers, and realtors, all dedicated to his election for governor. The funds are connected to a real estate investment manager and state pension investor who has been allotted $500 million in state funds to invest since Cahill became state treasurer in 2003, according to The Boston Globe, revealing a popular practice that many say crosses ethical lines.
The practice of investment mangers donating to politicians who have authority to allocate money to state pension plans is not illegal in Massachusetts, but many express concern that it shows a lack of transparency and presents a conflict of interest.
Several high-profile pay-to-play scandals around the country have involved politicians who oversee state pension funds and middlemen, spurring 17 states to impose fundraising restrictions on pension fund managers. The US Securities and Exchange Commission has also urged heightened regulation of pay-to-play activities, proposing regulations that would bar those who invest public pension funds from donating to or soliciting funds for the politicians responsible for choosing investment managers.
While the $106,365 in donations between 2002 and 2005 weren’t blatantly connected to Cahill, who became the state’s pension board’s chairman in 2003, The Boston Globe discovered a common thread: Michael A. Ruane, a Boston investment manager at TA Associates Realty with ties to the state’s pension.
The Globe’s extensive review of Cahill’s fundraising practices showed that the largest one-day infusion of campaign donations with ties to Ruane – $40,250 – was deposited just a day before the Pension Reserves Investment Management board voted unanimously to give Ruane’s company $100 million to invest. The cluster of donations, mostly $500 checks, came via almost 250 checks from Texas, Missouri, Colorado and Florida, among other states. Yet, Cahill and Michael Travaglini, the state pension board’s executive director, claim there’s no connection among Cahill’s fundraising, investment decisions, and Ruane’s firm.
Now, Cahill, who is running for governor as an independent, is using that money for his election this year, reported The Boston Globe. Since 2003, Ruane’s investment management firm has earned $34 million in management fees and has allocated $500 million in pension funds to invest.
The story follows recent news from the California Public Employees’ Retirement System (CalPERS), which showed middlemen earned $125 million in fees for helping funds get business with the fund giant. In response, CalPERS is reportedly working on ending the perception that placement agents are crucial to getting hired by the fund, boosting transparency by seeking details about placement agents hired by its investment partners, the investments they promoted and the fees they were paid.
To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742