crossposted from unbossed
Oh, so last December, you might have seen this announcement issued by the Pension Benefit Guaranty Corporation (PBGC):
December 22, 2008
PBGC Hires Strategic Partners For $2.5 Billion in Private Equity, Real Estate WASHINGTON—The Pension Benefit Guaranty Corporation (PBGC) today announced the selection of investment firms BlackRock, Goldman Sachs and J.P. Morgan as strategic partners to manage $2.5 billion in assets and provide support to PBGC's in-house investment staff.
"These new strategic partners will do much more than manage assets," said Director Charles E.F. Millard. "Our strategic relationships will be long-term in nature, and will add tremendous value for the PBGC going forward."
Or maybe not so long term, unless you consider that this relationship is now under investigation . . . and those consequences may well be longterm.
But before moving on to the present, I think it is worth a hubris moment to spend a bit more time with that gushing press release.
The PBGC's strategic partners will manage the Corporation's allocations to private equity and real estate, asset classes added to its portfolio under the diversified investment policy adopted last February by the PBGC Board of Directors. In addition, each partner will offer specialized services that build the Corporation's institutional capacity. Through these strategic partnerships, the PBGC intends to leverage each firm's full array of financial, quantitative and qualitative resources.
After an exhaustive due diligence process, the PBGC selected its partners from firms responding to a request for proposals published according to federal procurement procedures.
"Our first criterion for prospective partners was an excellent track record in allocating to private equity and real estate," said Millard. "These firms are world leaders in both fields. Second, the firms had to demonstrate their commitment to a complete partnership. They will be required to share information among themselves and give the PBGC unrestricted access to all intellectual firepower within their respective firms.
"These relationships will benefit the PBGC, not only with private equity and real estate investments, but in risk analytics and mitigation, consolidated reporting and staff augmentation. These resources will put the PBGC on a more strategic foundation for its future."
"Institutional investors at the forefront of best practices are adopting the strategic partnership approach to gain access to world-class intellectual resources," said Laurence D. Fink, Chairman & CEO of BlackRock. "We are proud that the PBGC has chosen BlackRock as a strategic partner to help manage its assets, while also providing best-in-class risk management services through BlackRock Solutions. We look forward to working alongside PBGC's other strategic partners, Goldman Sachs and J.P.Morgan, to serve this important Corporation and the American workers and retirees it serves."
"The PBGC joins a group of sophisticated investors at the forefront of the institutional investment community with this forward-thinking program," said Gary D. Cohn, President and Co-Chief Operating Officer, The Goldman Sachs Group, Inc. "We are delighted with this significant commitment to our alternative investment strategies. The PBGC will be a strategic partner with access to our world class proprietary and open architecture capabilities, along with the co-investment opportunities, resources, and intellectual capital of Goldman Sachs Asset Management. We look forward to supporting PBGC's already substantial in-house investment capabilities."
"J.P. Morgan is pleased to have been chosen to partner with the PBGC," said Jamie Dimon, Chairman and Chief Executive Officer, JPMorgan Chase & Co. "This partnership is at the leading edge of combining sophisticated, best-in-class investment management with strategic investment advisory services. We're proud that the experience and exceptional talent within our asset management business will have a significant role in offering prudent and innovative solutions for this critical federal government agency."
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in more than 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by PBGC's investment returns.
But this wonderful arrangement, it seems, was the result of unseemly doings. That was according to the PBGC Inspector General's report from last week.
So here is the letter sent asking the PBGC to continue her investigation into this sort of relationship.
May 14, 2009
Rebecca Anne Batts Inspector General Pension Benefit Guaranty Corporation Office of Inspector General 1200 K Street, N.W. Washington, DC 20005
Dear Inspector General Batts:
Thank you for your recent investigation of and report on former Director Charles E.F. Millard’s involvement in the Pension Benefit Guaranty Corporation’s (PBGC) implementation of its investment policy. This report brought to light very troubling actions regarding Mr. Millard’s involvement in the procurement process, and we look forward to seeing the extent to which PBGC carries out your recommendations.
We write to request that your office conduct further investigation into Mr. Millard’s later contacts with executives at companies that were awarded strategic partnership contracts. We refer in particular to e‐mails between Mr. Millard and a top executive at Goldman Sachs, which was awarded $700 million of PBGC assets for private equity investments. In e‐mails that were sent within two weeks after the award was announced, Mr. Millard writes to one Goldman Sachs executive regarding his job prospects, "Good to see you today. Thanks for speaking with Dennis Kass, and for your offer to get in touch with" several non‐Goldman Sachs investment firm executives. He later asks the executive for contact information for an executive at Jennison Associates, an investment firm.
After the Goldman Sachs executive confirms on November 12, 2008 that several executives are interested in meeting Mr. Millard, he responds "Ur grt. Tx. Will send info soon." Mr. Millard later emails several executives at another investment firm about their interest in him. He did not hear back for a period of weeks due to one of the executives’ illness, until the Goldman Sachs executive e‐mailed him, "[The Executive] said he really likes you and if times were better he would have hired you already.... He definitely likes you – is just not in a rush due to the terrible markets. Hope that helps."
This correspondence clearly shows Mr. Millard seeking placement assistance in the weeks following the contract announcements. We do not know the extent to which these conversations took place in personal e‐mails or telephone calls, and request that your office further examine this matter.
Thank you for your prompt attention to this matter, and we would appreciate an initial response by no later than May 29, 2009.
Sincerely, Edward M. Kennedy Chairman, HELP Committee
Max Baucus Chairman, Committee on Finance
Michael Enzi Ranking Member, HELP Committee
Charles E. Grassley Ranking Member, Committee on Finance
Oh, but you might also be interested in the PBG IG's views on other challenges facing her office.