Pat O'Brien, Pension Tension: KKR's Connection to State Fund Draws Criticism, Minneapolis-St Paul Citybusiness (Jan. 20, 1992)
At least two members of the Minnesota State Board of Investment and two legislators are questioning the state's continuing investments in leveraged buyouts by Kohlberg, Kravis and Roberts & Co. of New York.
Critics are questioning the fiscal prudence of placing roughly $300 million in one firm. Also at issue is whether KKR is charging exorbitant or allegedly illegal management fees and whether it is proper for public funds to be used for such purposes.
The elected officials directly making the decisions on management of nearly $17 billion in state pension funds are: Gov. Arne Carlson, State Auditor Mark Dayton, State Treasurer Michael McGrath, Secretary of State Joan Anderson Growe, and Attorney General Hubert Humphrey III.
McGrath has been one of the more vocal proponents of the state's participation in KKR's leveraged buyouts. But state Rep. Phyllis Kalin said it should be no surprise that McGrath supports the KKR investments. She notes that McGrath's largest re-election campaign contributors in 1990 were KKR principals Henry Kravis and George Roberts, who donated a total of $5,000.
McGrath said it was difficult to raise money to campaign for the low-visibility position of treasurer and that the financial assistance from KKR was provided at his request.
Paul Hammel, Treasurer Questions Gifts to Her Successor, The Omaha World-Herald (Dec. 1, 1994)
Outgoing state Treasurer Dawn Rockey expressed doubts Wednesday that her successor, Dave Heineman, would follow through with a planned audit of unclaimed property of Omaha Steaks International.
According to State Accountability and Disclosure Records, four executives and one employee of Omaha Steaks contributed a total of $4,250 Heineman's successful campaign against Rockey.
Heineman noted that Rockey's campaign received a donation from the State Street Bank of Boston, Mass., where the state keeps the unclaimed property funds in an account while searching for the rightful owners.
Rockey said the contributions were unsolicited.
Gerri Willis, Filling Carl's War Chest: Comptroller Getting Thousands from State's Money Managers, Crain's New York Business (Sep. 16, 1996)
Despite federal rules that have stemmed the flow of campaign dollars from businesses seeking lucrative municipal bond work, state Comptroller H. Carl McCall is still raking in the dough. He's collected nearly $200,000 in contributions from some of the biggest names in money management and brokerage, many of which manage the state's $75.8 billion in pension funds and are not covered by any giving bans.
Since September 1995, McCall has collected $10,000 from New York money manger Lord Abbett & Co., $10,000 from buyout shop Forstmann Little & Co., and $25,000 from tiny Utendahl Capital Partners. Together, these three firms earned $3.78 million in fiscal 1995 managing assets for the state.
A review of state election board documents by Crain's New York Business shows that 33 money managers contributed $187,700 in the past 18 months to McCall - even though it is early in the current election cycle and the comptroller has yet to start his most intensive fund-raising.
As sole trustee of the state's funds, McCall has the last word on which firms manage and invest the state's public pension dollars. From that position, he has become a powerful figure in one of the fastest growing arenas of money management.
"Because of the SEC's crackdown on the pay-to-play nature of the muni bond business, the game has shifted to asset management and brokerage," says Edward Siedle, a former SEC attorney and president of institutional brokerage firm Anvil Institutional Services. Inc.
Small brokerage firms have benefited from state business. Tiny Ormes Capital Markets Inc. earned fees of $23,940 from the state in 1995, the same year it contributed $2,500 to McCall's campaign. In 1994, it contributed $7,500. Other New York firms who get work from the state and contribute include: J&W Seligman & Co., $7,000; Alliance Capital Management, $5,000; and Carmona Motley & Co., $2,500. Heitman Financial of Chicago contributed $3,000 to McCall's campaign through principal Norman Perlmutter and his sons, Stephen and Robert. Heitman's JMB institutional real estate business earned $536,068 in fees from the state in 1995.
Just last week, money managers received an invitation to a fund-raiser for McCall sponsored by James Harmon, chairman of Wall Street investment bank Schroder Wertheim & Co.; Martin Lipton, the takeover specialist; and political fund-raiser Patricia Duff. The event is expected to raise $1 million.
Back to Pay-to-Play Page ** Top - New York
Charles Gasparino and Jonathan Axelrod, Political Money May Sway Business of Public Pensions, The Wall Street Journal (Mar. 24, 1997)
Between 1993 and 1995, Equitable Cos., its subsidiary Alliance Capital Management their subsidiaries and some executives ranked among the highest contributors to New York State Comptroller McCall, doling out about $70,000 in donations. In 1995, the companies ranked among the fund's biggest beneficiaries, bringing in about $8 million in fees and commissions from the McCall-led fund for doing pension-fund work, state documents show.
Back to Pay-to-Play Page ** Top - New York
Clifford Levy, Donors to McCall Campaign Got Pension Fund Contracts, The New York Times (Oct. 3, 1998)
Executives of a prominent Los Angeles investment firm took a striking interest late last year in the fortunes of a faraway public official little known nationally: New York state Comptroller H. Carl McCall.
On a single day in December, McCall's re-election campaign received a total of $16,000 in donations from seven executives of the firm, Freeman Spogli & Company. Three days later, the New York State pension fund, which McCall solely controls, invested $85 million in a fund managed by Freeman Spogli.
The transactions involving Freeman Spogli fit a clear pattern. Throughout his term, McCall has repeatedly awarded contracts and other work for the $100 billion pension fund to businesses that have given sizable sums to this re-election campaign. In numerous instances, the donations came just before or after the firms were awarded work by the pension fund, according to pension fund and campaign records.
Since his term began in 1995, McCall has collected more than $1.8 million from those donors, or at least 35 percent of his total funds raised, $5.2 million, the documents show.
McCall is well positioned to benefit from their largess. While pension funds for public employees in nearly every other state are run by boards made up of public officials and employee representatives, in New York, state law grants the Comptroller complete control over the fund that serves public employees.
Roughly 40 percent of McCall's contributions since 1995 are from out-of-state donors, a far higher percentage of out-of-state donations than any other statewide candidate.
The timing of the contributions suggests a correlation between McCall's fund-raising and the activities of the pension fund.
Executives at Clarion Partners of New York gave $25,000 to McCall's campaign about a month before it was selected to manage part of the fund's real estate holdings; since then, Clarion executives have contributed $77,000 more.
Heitman Financial of Chicago has given more than $134,000 to McCall campaigns, most of it after the firm was selected to advise the fund.
A few weeks after real estate magnate Paul Milstein made a single $28,000 contribution to McCall's campaign, the Comptroller's office agreed to lower the interest rate on a $130 million mortgage on a building co-owned by a Milstein company.
The pension fund also lowered interest rates on mortgages it holds on properties owned by Pioneer Development early in 1998. Pioneer senior executive Paul Falcone and his wife, Noreen, contributed $38,000 to McCall from October 1995 to September 1998.
Around the time that four firms that were among the 10 selected out of a pool of 87 applicants, the firms and their executives donated a total of $53,000 to McCall's campaign, and have since contributed more than $185,000.
The pension fund invested $100 million in a fund operated by Olympus Real Estate of Dallas. Donors connected to Olympus contributed $38,000, much of it around the time that the pension fund made investments with Olympus.
Three months after the Comptroller's office decided to invest $75 million in an investment fund run by Colony Capital of Los Angeles, the firm's chairman, Thomas Barrack, donated $10,000 to McCall's campaign. Over the next two years, Barrack contributed an additional $18,000, and others linked to the firm contributed $21,000. The pension fund subsequently invested $100 million in a Colony investment fund.
McCall's predecessor, Edward Regan, was investigated by law enforcement officials after the disclosure of a memo written by members of his staff, one of which pointedly said, "Those who give will get." Regan denied any impropriety.
Back to Pay-to-Play Page ** Top - New York
James Odato, Comptroller's War Chest Raises Ethics Issues as Vendors Donate, Times Union (Oct. 11, 1998)
Aides to state Comptroller H. Carl McCall point to firings and reduced contracts with firms that have contributed to McCall's campaign as evidence that he does not engage in pay-to-play.
Lord Abbett, which with its executives had made more than $50,000 in donations to McCall's campaign and had received over $900,000 in fees from his office, was dismissed in July 1998 for poor performance.
In December 1996, Carlson Investment, a $1,000 donor to McCall, was terminated, and the size of the pension fund's assets under the management of Seligman - a $14,500 contributor - was reduced by $304 million in 1995. Other contributors whose pension management loads were reduced include Brinson Partners, $3,000 donors, and Alliance Capital, whose PAC and principals contributed $50,000.
Back to Pay-to-Play Page ** Top - New York
Bill Krueger, Money Managers Giving to Boyles, The News and Observer (May 2, 1996)
As the state's treasurer, Harlan Boyles has a big voice in choosing the banks and investment that help manage billions of dollars in state pension funds.
It's big business for the 10 firms that collected more than $18 in fees for their work over the past three years.
And it's apparently good business - politically, at least - for Boyles.
Facing an aggressive challenger in the Democratic primary, Boyles has received about $40,000 in campaign contributions from groups he helped choose to manage state pension funds.
Two years ago, the SEC enacted a ban on Wall Street contributions that dried up a major source of campaign funds for Boyles, who fought the restrictions. So now he is getting campaign contributions from a group that is not subject to the federal restrictions.
Franklin Street Trust, a Chapel Hill investment firm, has received $916,000 in fees over the past three years for managing more than $160 million in state pension funds. The firm's three principals and their wives contributed more than $24,000 to Boyles' campaign in 1996, the maximum amount allowable.
Similarly, the PACs of several big North Carolina banks that do business with the treasurer's office have contributed almost $16,000 to Boyles' campaign.
|
Bank
|
Amount contributed by bank's political action committee
|
Amount of fees received by bank from state pension funds
|
| Branch Banking & Trust |
$4,000
|
$186,000
|
| NationsBank |
$4,000
|
$1.7 million
|
| First Union Bank |
$3,700
|
$628,000
|
| Wachovia |
$2,000
|
$1.3 million
|
Some of those contributors acknowledge that a small part of their reason for Giving to Boyles is because they do business with his office.
"I can't say it has no impact," said Eubanks of Franklin Street Trust. "But there are factors."
Back to Pay-to-Play Page ** Top - North Carolina
James Bradshaw, Sweeney Says Petro Contributions Came from Firms with County Ties, The Columbus Dispatch (Oct. 30, 1994)
Randall Sweeney, Democratic candidate for state auditor, says that Cuyahoga County Commissioner Jim Petro has received substantial contributions from officers or political action committees of several firms doing business with the county.
Sweeney said contributions to Petro from companies doing business with the county include $10,450 from McDonald & Co. and $5,000 from Shearson Lehman Bros., both investment firms; $3,000 from Banc One; and $5,955 from the law firm of Squire Sanders and Dempsey.
Until commissioners recently took over an investment fund from Cuyahoga County Treasurer Francis Gaul because of poor investments, McDonald & Co. advised the county on the fund, Sweeney said.
Steve Law, Wall St. Funds Hill Campaign, The Business Journal (May 10, 1996)
Executives from a corporate buy-out firm are soliciting business with the Oregon state pension fund after bundling $4,700 in checks for Treasurer Jim Hill's re-election campaign.
Hill's recent campaign finance reports show 12 different checks arrive in late February from principals and affiliates of Rosecliff Inc., a Wall Street leveraged buyout firm. Rosecliff recently scheduled an appointment for May 20 to seek business with the Treasury, which invests more than $2 billion in pensioners' money with leverage buyout firms.
Hill may have run afoul of an Oregon Investment Council rule barring treasurer candidates from soliciting or accepting campaign donations from executives doing business with the pension fund. Two checks arrived in March from executives of Equinox Investments and three came in from officials at Alliance Capital Management International. Both firms work as pension fund money managers for the Treasury.
Those checks, plus the Rosecliff amount, add up to $6,450. Thus, 46% of the $13,915 raised so far by Hill comes from people with a vested interest in Treasury activities.
Charles Gasparino and Jonathan Axelrod, Political Money May Sway Business of Public Pensions, The Wall Street Journal (Mar. 24, 1997)
Nearly three years after federal regulators sought to end the use of political contributions to win municipal bond business, a bigger and still untouched problem has emerged.
At issue: how politics has influenced the huge public investment fund business. Money managers, Wall Street firms and even some stodgy mutual-fund players are coughing up big bucks in the form of campaign contributions and other political favors to public officials who oversee nearly $1.1 trillion in public pension funds and millions of dollars of other public investments.
In the fall of 1996, Mina Baker Knoll received thousands of dollars in contributions from firms that do fund business even as her mother, Pennsylvania state Treasurer Catherine Baker Knoll, helped oversee state investment funds. The contributions included more than $35,000 from executives and consultants at Deloitte & Touche, the giant accounting firm. Before leaving office, Catherine Knoll awarded Deloitte & Touche a consultant contract.
Gary Pilgrim, a prominent mutual-fund manager at Pilgrim Baxter & Associates in Wayne, Pennsylvania, acknowledges that politicians frequently seek contributions from him, particularly those who have already appointed him to manage some of the states' funds. He has been a contributor to several political campaigns, conceding that "we're put in a difficult position."
Back to Pay-to-Play Page ** Top - Pennsylvania
Boston Bank's 'Sham' Deal Costing PA Millions, AP Newswire (Feb. 5, 1998)
Pennsylvania Treasurer Barbara Hafer went to court to defend her right to award a new contract for the management of more than $64 billion in state securities. Hafer said she refuses to be bound by her predecessor's attempt to guarantee a Boston bank a long-term contract with a five-fold fee increase.
According to Hafer's filing, Knoll promised State Street that "in exchange for agreeing to accept modest compensation for the . . . first two years of the contract," State Street "would be 'taken care of' with … much more lucrative compensation in an amended or subsequent contract."
In the waning days of the Knoll administration, and without seeking proposals from any other institutions, Knoll granted contract extensions that "had the effect of enormously increasing the compensation received by (State Street) for performing services identical to" the services it had been performing, according to Hafer's court filing.
The firm's fees shot up from $250,000 to $1.5 million as a result of the contract extensions. In continues to act as custodian for $64 billion in stocks in the state's pension funds.
Back to Pay-to-Play Page ** Top - Pennsylvania
PA Department of Treasury Hafer Can Cancel Pension Securities Contract, PR Newswire (May 27, 1998)
A Commonwealth court has ruled that Pennsylvania Treasurer Barbara Hafer does have the power to void a long-term, multimillion-dollar contract extension that her predecessor awarded to a Boston bank just before Hafer took office.
The court blasted the "last-minute" Knoll-State Street deal as "a particularly egregious violation of public policy."
Back to Pay-to-Play Page ** Top - Pennsylvania
Bob Warner, Firms Paying to Play? Pension Managers Have Given 168G to Race, Philadelphia Daily News (May 7, 1999)
Private firms managing city and state pension funds have invested more than $168,000 in the Philadelphia mayor's race.
Among the mayoral candidates, John Street raised the most early money from pension fund managers -- $64,000 total, according to reports.
Close behind, with $57,750 from money managers, was state Rep. Dwight Evans. As ranking Democrat on the state House Appropriations Committee, Evans sits on the board of the biggest pension fund in Pennsylvania - the $45 billion Public School Employees' Retirement System.
Evans received $25,000 from partners in Lubert Adler Real Estate, which handles a $5 million stake in Philadelphia for the State Employees Retirement System.
Weaver C. Barksdale & Associates of Nashville, Tenn., whose top officers gave $5,000 to candidate Marty Weinberg, handles $19 million for the $415 million Philadelphia Gas Works retirement fund.
Back to Pay-to-Play Page ** Top - Pennsylvania
Jeffrey Cohan, Fund Managers 'Pay-to-Play': Six Firms Managing County's Pension Investments Gave to Board Memberss;'' Campaigns, Pittsburgh Post-Gazette (Feb. 22, 2001)
The four politicians who control Allegheny County's $711 million, taxpayer-supported pension fund gave huge investment contracts to their campaign contriutors last year, recently filed reports show. Of the eight investment firms that contriuted to at least one of the politicians' campaigns last year, six received contracts with annual commissions of $100,000 or more.
Fourteen other firms sought contracts to manage pension fund investments but did not make the campaign contributions. Only two of those 14 won the business.
The four elected officials on the county's Retirement Board -- Chief Executive Jim Roddey, Clerk of the Courts George Matta, Treasurer John Weinstein and Controller Dan Onorato -- also received contributions from an assortment of others who do buiness with the pension fund, including lawyers and actuaries.
Together, the four politicians hold a majority of the seven seats on the board, which manages the pension fund for 11,000 county government retirees and employees. The county, with tax money, matches employee contributions to the fund dollar for dollar.
According to campaign finance reports filed Jan. 31, the four politicians received campaign contriutions last year from more than 40 individuals and corporations with existing or hoped-for business ties to the pension fund -- this despite the fact that none of the four face re-election until 2003.
After a year that saw the pension board overhaul its portfolio, two-thirds of the fund is now held by investment managers who made campaign contributions to the four elected officials in 2000. As recently as September, that figure stood at 49 percent.
Last October, the board invested $50 million with Pittsburgh-based Federated Investors, a firm whose executives contriuted to all four of the politicians last year.
Federated got the nod even though it posted the worst results last year and over the last five years of the three finalists for an investment in large-capital value stocks. Cleveland-based Key Asset management, the finalist with the best returns, did not make any political contributions here.
The pay to play system was illustrated Nov. 9, when the board picked five new investment managers.
RRZ Investment Management, formerly known as Russell Rea Zappala & Gomulka Holdings, received a $75 million chunk of the pension fund. In March and April, three RRZ executives contributed a total of $1,500 to Matta's campaign. One contributed $1,000 to Onorato in May. Three weeks after getting the pension contract, RRZ Chairman Charles Gomulka donated $1,000 to Roddey.
Advanced Investment Management was picked to handle $40 million. Company President J. Thomas Allen contributed $900 to Matta on April 6.
Mulhlenkamp and Co., a smaller company based in Pine, was given $39 million to invest. Robert Muhlenkamp contributed $1,000 to Weinstein on July 27, $500 to Onorato on May 23, and $450 to Matta on April 6.
MDL Capital Management, Downtown obtained $31 share of the pension fund to invest. The firm's political action committee contributed $2,000 to Matta less than two months before.
Only one of th efirms select4ed that day, Fidelity, had not made a campaign contribution to at least one of the four politicians. All five of the selected firms stand to make at least $100,000 in commissions this year for investing the pension money.
Matta was unapologetic about soliticing campaign contributions from companies that want business from the Retirement Board. "Politics is a very expensive game, he said. "We look at putting together a broad base of people who might donate."
Muhlenkamp conceded that his desire for pension fund commissions was part of this motivation to make campaign contributions. "I can't say it wasn't an interest," he said. "[A campaign contribution] allows you to talk to people that you otherwise may not [have access to]. That's always helpful."
So do two other firms that received investment management contracts at earlier Retirement Board meetings -- Federated and BlackRock, which is owned by Pittsburgh-based PNC Financial Services.
Federated officials contributed $5,000 to Roddey, $1,000 to Weinstein, $900 to Matta and $100 to Oronato, while PNC executives and its PAC vave $13,000 to Roddey, $1,000 to Weinstein, $1,400 to Matta and $1,100 to Oronato.
Three months before Federated received a $50 million share of the pension fund to invest, and PNC's BlackRock received a $70 million share.
Back to Pay-to-Play Page ** Top - Pennsylvania
Editorial, The Best Return: Uncoupling the Pension Board from Campaign Cash, Pittsburgh Post-Gazette (Feb. 26, 2001).
Last week, Post-Gazette staff writer Jeffrey Cohan reported that political donations foretell to a great extent which investment firms get contracts with the Allegheny Country Retirement Board.
In a nutshell, six of the eight firms that gave to one or more of the politicians on the board got contracts that paid commission of $100,000 or more. By contrast, only two of the 14 firms that did not kick in campaign money won some county business.
The best solution is the one being considered by the Securities and Exchange Commission -- a policy that the board could, but won't, adopt itself. Asserting that politicians "violate th public trust" by allowing campaign cash to influence their management of public pension funds, the SEC may bar investment advisers from doing such work if they have donated to a politician with power over the fund.
That rule would have positive impact on at least two fronts.
With the removal of political contributors from the equation, it would become more obvious to the public that a firm has received a county contract because it has a proven track record, is a local employer or has submitted a superior proposal. And it would let all seven members of the Retirement Board do what they were appointed to do -- hire the best in the business to get the highest return on the public's investment.
Back to Pay-to-Play Page ** Top - Pennsylvania
Gregory Smith, Solomon Once Suggested that Elio Employer be Considered For Investment, The Providence Journal-Bulletin (Mar. 4, 1995)
Former Rhode Island Gen. Treasurer Anthony Solomon helped a company that secretly employed a friend of his, Carmen Elio, to compete for a $30 million investment by the state pension fund.
Solomon suggested that an Aetna proposal be considered for an investment in real estate. While publicly denying wrongdoing in the 3 ½ years since the Elio scandal broke in Massachusetts and Rhode Island, Solomon never publicly acknowledged doing even that much on Aetna's behalf.
Elio, who was a prominent public-pension expert in Massachusetts, informally advised Solomon, at no direct cost, and attended meetings of the Rhode Island Investment Commission, of which Solomon was the Chairman.
What was unusual was Solomon's relationship with Elio, his onetime employer. Elio and his family made financial contributions to Solomon's election campaigns. Elio secretly was paid as an Aetna consultant, and his pay depended in part on how much money was invested in the Aetna real estate fund.
Solomon has said he did not know that Elio worked for Aetna.
Kathy Walt, 2 Education board Members Allegedly Pushed Moody Firm for Job, The Houston Chronicle, (Oct. 4, 1997)
Two State Board of Education members with business or social ties to the powerful Moody family in Galveston tried to pressure fellow board members into granting a lucrative contract to an investment company controlled by the Moodys, another board member.
David Bradley said that fellow board members Will Davis and Monte Hasie paid "an inordinate amount of attention" and prodded for the selection of Securities Management and Research Inc. to manage investment of some Permanent School Fund assets.
Davis is paid lobbyist for American National Insurance Co., the parent company of SM&R. The Moody family owns 70% of American National. Hasie's son is a fraternity brother of one of the sons of Robert Moody, the chairman and CEO of American National.
Education Commissioner Mike Moses has suggested that Bradley spearheaded a campaign against SM&R in retaliation for the Moody Bank's firing of Bradley's close friend and confidant, Steve Stockman. Moody Bank also is owned by the Moody family.
Back to Pay-to-Play Page ** Top - Texas
Terrence Stutz, School Fund Contracts Put on Hold, The Dallas Morning News (Nov. 26, 1997)
Contracts allowing private firms to manage the $16 billion Permanent School Fund have been put on hold because of allegations of improprieties raised by state Board of Education member David Bradley.
Bradley questioned campaign contributions made to board member Monte Hasie of Lubbock in his unsuccessful 1996 state Senate race.
Hasie said Tuesday that he received $22,000 from political action committees or individuals connected with three investment companies that were among the nine selected to manage the Permanent School Fund. All of the contributions were made in 1996, several months before the board decided to seek new outside managers for the Fund.
The contributions came from PACs for Davis Hamilton Jackson & Associates ($15,000) and Columbus Partners ($2,000), and from an executive with Loomis Sayles ($5,000).
"In no way did they influence my thinking on the selection," Hasie said.
PACs controlled by Davis Hamilton also contributed to board members Alma Allen ($1,800) and Will Davis ($1,000). Allen received an additional $200 from Alfred Jackson, a name partner of Davis Hamilton.
Back to Pay-to-Play Page ** Top - Texas
Kathy Walt, New Board of Education Rules Target Contractor Donations, The Houston Chronicle (Mar. 6, 1998)
The State Board of Education tentatively agreed new campaign finance disclosure rules Thursday aimed at what some see as a growing danger of influence-peddling by those seeking lucrative education contracts.
The rule would require almost anyone associated with a company seeking a contract to disclose campaign contributions made to state board members.
Several board members also said they will ask the Texas Legislature next year to ban contributions from those seeking contracts with TEA. State law already prohibits textbook publishers from contributing to board members' campaign coffers.
Back to Pay-to-Play Page ** Top - Texas
R. G. Ratcliffe, Secrecy Cloaks $1.7 Billion in UT Investments, The Houston Chronicle (Mar. 21, 1999)
As chairman of the 3-year-old University of Texas Investment Management Company (UTIMCO), Tom Hicks has committed $1.7 billion in public university money to private investment banking funds that promise potentially high returns from high-risk investments.
Almost a third of that money has been given to funds run by Hicks' business associates and friends or funds run by major Republican political donors. And because of rulings by the Texas Attorney General' Office, the public cannot find out whether any of the investments made or lost money.
In one case, Hicks insisted that UTIMCO increase by $10 million an investment commitment to a company in which he had an indirect financial interest. The staff halted full funding of the investment when it discovered the conflict.
"Pay-to-play creates the impression that contracts for professional services are awarded on the basis of political influence rather than professional competence," SEC Associate Director Robert Plaze said. "It brings discredit on the businesses and professionals who participate in the practice."
When it began operations in 1996, Hicks became chairman of the nine-member UTIMCO board of directors, which has included key fund-raisers for the Republican National Committee.
UTIMCO was created to permit greater secrecy in investments that high-return investment funds required. Since 1996, UTIMCO has handled more than $11 billion in the investments of UT endowment funds as well as the state's higher education trust, known as the Permanent University Fund.
In the past three years, state auditors have criticized the secretive nature of UTIMCO's investment decisions and have complained about the potential for conflicts of interest for board members.
Suzy Woodford, executive director of Common Cause of Texas, said UTIMCO's closed-door investment practices keep the public from knowing whether there are conflicts of interest, whether board members are profiting from investments and even whether the investments are wisely made. "There really is no oversight over what they are investing public money in," she said.
UTIMCO has made $120 million in commitments with three funds that have done business with Hicks, Muse.
American Securities Partners, a New York leverage buyout firm, received $10 million in investment commitments from UTIMCO in May. Ten months earlier, American Securities had sold its ownership interests in Community Pacific Broadcasting L.P. to Hicks, Muse and Capstar Broadcasting partners, which is run by Hicks' brother, Steven.
Evercore Capital Partners, a New York investment banking firm, received a $40 million investment commitment from UTIMCO in January 1997. Less than nine months later, Evercore served as the financial adviser to NBC as the network entered a $1.7 billion joint venture with Hicks' firm to purchase LIN Television Corp.
The Kohlberg Kravis Roberts & Co. 1996 Fund received a $50 million commitment from UTIMCO in August 1996. Sixteen months later, KKR announced a joint venture deal with Hicks' investment firm to buy Regal Cinemas for $1.1 billion. The money KKR used to for the joint venture with Hicks came from the KKR 1996 Fund, according to SEC filings.
UTIMCO invested another $107 million of public university money with two of Hicks' former University of Texas classmates, Bruce Schnitzer and William McComb Dunwoody. Schnitzer helped raise money in 1990 for the Hicks Muse Equity Fund I and subsequently made several investments with Hicks' firm.
In addition to the investments with Hicks' associates, $105 million of the UTIMCO private investments has gone to five funds that are run by or have major co-investors who are major Republican donors, including contributions to George W. Bush's gubernatorial campaign.
Back to Pay-to-Play Page ** Top - Texas
Vermont Treasurer Supports Curbs on Political Cash from Finance Firms, The Bond Buyer (Apr. 8, 1996)
Vermont Treasurer James Douglas is pushing a measure in the General Assembly that would prohibit financial service providers from making campaign contributions to candidates for state treasurer.
Douglas manages the state's $1.4 billion pension fund and $1.6 billion short-term cash portfolio. "I never knew how popular a person becomes when one handles over $3 billion a year," he said.
Janet Aschkenasy, Pay-to-Play: Scrutiny of Unethical Practices at Public Funds is Intensifying, But Will Self-Policing Efforts Succeed? Plan Sponsor (Feb. 1998)
Vermont's legislature passed a law in 1997 that precludes the state treasurer from entering into any contract with firms that have made or solicited political contributions on behalf of a candidate for the treasurer's office within five years of the contract date.
The Vermont State Retirement Systems also prohibited the acceptance of any gifts or gratuities by its staff. Vermont's largest pension fund, the $900 million State Teachers Retirement System, balked at the restriction, and slapped a $200 ceiling on gifts from a single donor per year.
Vermont and Connecticut are the only states that have laws preventing a candidate for treasurer from receiving money from asset managers or other vendors capable of securing lucrative contracts from the treasurer's office.
Craig Gilbert and Jeff Browne, Tracking the Big Spenders, The Milwaukee Journal (Oct. 14, 1990)
When it comes to big money, Gov. Tommy Thompson's re-election effort is unlike anything this state has ever seen.
His challenger, Tom Loftus, accuses the governor of exploiting the incumbency by systematically raising money from people who have business before the state, by "shaking them down."
Two of Thompson's largest donors are Blunt Ellis & Loewi of Milwaukee and Bear, Stearns & Co. of New York. Both compete to handle state bond issues and investments.