Questionable fees amounting to millions of dollars that have been paid to middlemen for the placement of Illinois’ government employee pension investments have resulted in subpoenas from federal investigators and calls to end the practice.
Coming under the most pressure has been Robert Kjellander, who has received $4.5 million from the politically powerful Carlyle Group for handling $500 million of Illinois pension fund investments. In addition to being treasurer for the national Republican Party and Republican National Committeeman for Illinois, Kjellander runs Springfield Consulting, a lobbying firm in Illinois’ capital of Springfield.
Feds Supoenaed Records
Federal investigators have subpoenaed records from Springfield Consulting and Carlyle Group, whose advisors and board members have included President George H.W. Bush, former defense secretary Frank Carlucci, and Bush confidant and political powerbroker James Baker. The firm’s current chairman is Louis Gerstner, former chief executive at IBM.
The list of influential persons and firms that have received millions of dollars of pension business and finder’s fees is long and includes both Democrats and Republicans.
No one has been charged with a crime related to the payment of fees, but the political backlash has been furious. Investigations continue.
Governor Proposes Reforms
On August 11, Carlyle officials appeared before the Teachers’ Retirement System board to explain the payments to Kjellander. The Carlyle officials pledged at that meeting to stop paying him the fees.
One day later TRS Executive Director Jon Bauman proposed the board prohibit such fees on future investments the board makes. In an August 26 letter to TRS members, Bauman wrote, “During the August Board meeting, our trustees approved several changes in the Investment Policy governing private markets. The changes ban third-party payments (finder’s fees), except for marketing fees paid to legitimate third-party professional marketing organizations and investment bank placement divisions. Any fees permitted under the exemption will be disclosed in public documents prior to any commitment.”
Gov. Rod Blagojevich (D) has since proposed reforms that would end the payments along the lines of Bauman’s proposal, strengthen ethics rules, and increase penalties for fraud against the state pensions.
State Sen. Jeff Schoenberg (D-Evanston) also has announced he plans to push legislation to eliminate middleman fees for the placement of pension investments.
— Steve Stanek