Report: Philadelphia Pension Money Managers Pay to Play

While the mega-donor money managers have earned the city returns close to the averages for comparable investments, some argue that it is merely the latest example of the so-called “pay to play” culture in which money managers “buy” their way into a pension management contract, according to a Philadelphia Daily News report.

“It’s clear to me, if you don’t make political contributions or join a PAC, your odds of getting [city pension business] are virtually nil, unless you’re a really big player,” said an unidentified money manager quoted by the Daily News. “That [pension] fund historically has been like a huge slush fund.”

The potential influence of campaign donations causes some to fret that money managers with the best political connections will get the best contracts and earn a “pass” when their investing prowess becomes sub par.   “It’s the same kind of pay-for-play we’ve seen for years in the bond business,” Bill Allison, managing editor of the Center for Public Integrity in Washington, DC, told the Daily News. “These (pension management contracts) ought to be awarded on merit, and too often it’s who you give to and who you know that determines who gets the business.”

Mercer Replaced

Fears of undue political influence in the city’s pension operations were magnified by the pension board’s decision last month to replace its longtime investment consultant, Mercer Investment Consulting, with a small local firm, Fiduciary Investment Solutions (FIS). Mercer, with more than $1 billion in annual revenues, advises 450 pension funds around the country.

On the other hand, FIS is a 14-person operation, headed by Tina Poitevien, a former chief investment officer for the Philadelphia pension board during the early 1990s, when the Philadelphia fund underperformed similar government pensions around country. Poitevien, who contributed $6,000 to Street’s recent re-election campaign, blames the poor performance on investment restrictions in state law, finally lifted April 1994.

The city pension board’s investment records are among the extensive files seized by federal investigators in October, days after the discovery of listening devices in Street’s office. Why the federal officials are poring over the pension records is not clear. But some of the firms managing pension money for the city have been major contributors to political action committees controlled by Philadelphia attorney Ronald White, whose office records also were seized in the federal probe, according to the newspaper

The largest check

The donor writing the largest check to White’s political-action committees the past five years has been money manager John McNiff of Plymouth Meeting, president of Longwood Investment Partners L.P, of Plymouth Meeting,  located outside Philadelphia. Between May 2002 and October 2003, McNiff handed over $100,000 to White’s PACs – $70,000 to an organization called Citizens Action PAC and $30,000 to a PAC called Citizens Watch 2000.

His money quickly got funneled into Street’s re-election campaign: out of $122,600 distributed by White’s PACs since McNiff began making contributions, $102,500 went to Street.

At the same time, Longwood started running a piece of the city fund. In August 2002, through a small money-management company run by John Spagnola, the former Philadelphia Eagles’ tight end, Longwood was given $7 million in city pension money for small-cap equities. By the end of October 2003 the account had grown to $11.1 million, a 40% increase – comparable to what other small-cap investors averaged over the same period.

According to the newspaper, other major political contributors among the city’s money managers include:

• Turner Investment Partners, a firm now handling about $90 million in city pension funds, invested in small- and mid-cap companies. Employees of the firm have donated $35,000 to Street and $124,500 to Rendell through Turner’s own political action committee, known as Westlakes PAC, which appears to raise funds principally from Turner employees. Last year the firm received $648,000 in fees from the pension board, more than any other manager.
• Real estate investors Ira Lubert and Dean Adler, who have donated more than $118,000 to Street and $22,000 to Rendell, while using city and state pension money in several real-estate partnerships.

The city pension board is chaired by the city Finance Director, with eight other members, including representatives from the four city unions. The board generally approves any changes in money managers, with advice from an outside consultant who evaluates their financial performance.