NC Pension Accused of Pay-to-Play Violations

The State Employees Association of North Carolina (SEANC) has filed a complaint with the US Securities and Exchange Commission (SEC), urging an investigation into possible pay-for-play violations by the state treasurer and the former White House Chief of Staff Erskine Bowles.

According to the document, Bowles—co-founder and now-senior advisor to Charlotte-based private equity firm Carousel Capital—had hosted a fundraiser for Treasurer Janet Cowell at his home in June 2011. A few weeks later, SEANC said Carousel was selected to invest an “undisclosed portion” of the $230 million NC Innovation Fund, which was funded by the state’s retirement system.

“This is the type of abuse we were afraid we would find when we investigated the fees associated with our retirement system,” SEANC Executive Director Dana Cope said. “We won’t stand for our members’ retirement security and hard-earned money being used as a bargaining chip in a political game.”

Treasurer Cowell is the sole fiduciary of the state’s $90 billion retirement system.

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A spokesperson for Treasurer Cowell refuted all allegations and argued that her work with the pension fund have been done with “transparency, accountability, and ethics.”

“Political issues have no role in investment decision-making—none, both by policy and practice,” spokesman Schorr Johnson said.

The SEC’s 2010 regulations against pay-to-play practices prohibit campaign contributions or other political contributions to influence awarding of contracts for managing government investments including public pension plan assets. It also bans investment advisers from managing these funds for two years after a contribution is made.

“This is the type of abuse we were afraid we would find when we investigated the fees associated with our retirement system,” –SEANC.

“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” former SEC chairman Mary Schapiro said at the time these rules were passed.

SEANC said Bowles’ wife Crandall, who has been on the board of directors of JP Morgan since 2006, also hosted the fundraiser, adding to the “seemingly obvious breach” of the pay-to-play rule.

“SEANC has a particular concern about a JP Morgan board member as well connected as Crandall Bowles holding a fundraiser in her home for Treasurer Cowell because of the inadequate performance of REITs in the North Carolina system and the unknown amount of fees Cowell is paying in a traditionally high fee industry,” the complaint said.

Johnson stated that the treasurer had “verified with outside legal counsel” and found the Bowles did not qualify as “investment counsel” as defined by SEC regulations. “The department then took it a step further by ensuring contractually with Carousel that they were compliant with this SEC rule,” he said. “If Carousel failed to comply with the rule, the investment would likely end.”

The Abu Dhabi Investment Authority (ADIA) has appointed former Russell Investments CIO for Equities Brian Tipple to run its external equity investments.

Tipple joins from US-based Key Private Bank where he was CIO for its $30 billion multi-asset business. He spent nearly 20 years at Russell in various roles, including CIO for equities and CIO for Europe, the Middle East, and Africa.

In the newly-created global head of external equities role, based in Abu Dhabi, Tipple will take on responsibility for the implementation and development the investment strategy for ADIA’s external equities department, which allocates money to third-party managers.

Obaid Al Suwaidi, executive director of external equities at ADIA, said Tipple had “proven himself as an astute investor and leader with a deep understanding of global equity markets”.

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It is the sovereign wealth fund’s third major appointment in a little over a year, following the hires of Christoph Rühl as global head of research in May and Suresh Sadasivan as head of Asia ex-Japan for the internal equities division in August 2013.

The ADIA is the second-largest sovereign wealth fund in the world with an estimated $770 billion in assets.