Crain's Chicago Business
CHAMPAIGN, Ill. - James Hacking could write a book on how not to run a public pension fund.
The administrator came to his job as executive director of Illinois' State Universities Retirement System in February after holding two similar posts in Minnesota over the past 15 years. In all three cases, Mr. Hacking was brought in to restore confidence following scandals over ill-fated investments and questionable administrative spending.
It's hard to imagine a more striking difference between him and Dennis Spice, his Illinois predecessor who was forced to resign last year after giving state legislators conflicting stories about lavish perquisites for himself and his top aides.
Mr. Spice, who was paid $129,000 annually, and his staff initially balked at providing basic information about their salaries to state auditors, claiming at one point that the taxpayer-supported pension fund wasn't a state agency.
Mr. Hacking, by contrast, makes public a quarterly report detailing every expenditure by the $7 billion fund.
"If the people at the top aren't disposed to being open, it creates a bunker mentality that ends up creating problems," said the 50-year-old transplanted New Englander.
Mr. Spice declined to comment. He has said previously that the perks were rewards for negotiating lower fees with investment advisers and for lobbying the General Assembly to pass legislation ensuring that the fund and the four other state pension systems can meet their long-term obligations to retirees.
Still, Mr. Spice's spending sparked a political furor, especially because the fund was posting dismal investment returns at the time. Also, after more than a decade of underfunding by state lawmakers, the fund was underfunded by $4.1 billion. The fund covers 22,000 retirees and 88,000 working investors.
Said Ronald Peters, a University of Illinois professor of labor and industrial relations, "People were mad as hell that our money was being used for these perks while the retirement system was going broke."
Mr. Hacking is part of a new breed of public pension fund executive who recognizes there is more to running a fund than producing good financial results. While pension funds are focused on long-term investment returns, managers also need to be sensitive to short-term political realities.
"More investment managers are becoming proactive in that area," said Les Golembo, chief executive officer of Performance Analytics, a Chicago pension fund consulting firm.
Mr. Hacking's no-nonsense style won over Illinois political leaders during legislative hearings in the spring. Lawmakers who had been eager to bash the agency again over Mr. Spice's controversial legacy muted their complaints after hearing a confident executive pledging to be open and honest.
"Nobody likes surprises," Mr. Hacking told legislators, reporters and anybody who would listen. "I don't like surprises, either."
There were plenty in the waning days of Mr. Spice's administration.
Auditors uncovered country club memberships, a $7,000 annual car allowance plus mileage reimbursements and $4,000 in credit card purchases for items such as theater tickets and 14-karat-gold tie holders. Mr. Spice and his top aides also had golden parachutes in the event that the fund was consolidated with other state pension funds.
On the eve of the audit's release, retirement system trustees awarded a total $34,500 in bonuses to Mr. Spice and four aides. The 11-member board included people appointed by Gov. Jim Edgar and members of university and college governing boards.
Legislators and retirees angrily rejected Mr. Spice's wavering defense of the spending, which came during a year when the fund earned 0.8% on its investments. By comparison, the state's other pension funds posted average 1.4% returns.
Mr. Spice gave conflicting stories about his bonuses and the disposition of the tie holders, saying initially they were given as gifts to former board members, then admitting he had kept them.
Faced with a public relations disaster, the governor pressured Mr. Spice to resign and later signed legislation replacing retirement system board. The new panel promptly began searching for someone to lead the fund out of the morass.
They liked what they saw in Mr. Hacking, whom they recruited for $125,000 annually.
'An impeccable reputation'
"We found Jim to have an impeccable reputation," said Jack Shultz, president of the revamped board.
However, the bad news about his predecessor's regime persists. A Champaign County grand jury is investigating $8,000 in state political campaign contributions made in the names of Mr. Spice and three aides using pension fund money.
The Federal Election Commission has determined that the fund could be fined for another $4,345 in possibly illegal contributions to federal campaign committees. Federal law prohibits making contributions in the name of another person or organization.
Auditors uncovered the contributions - listed on payment vouchers as "legislative conferences" - after legislators ordered a detailed review of the fund's spending during the past two years.
The saga sounds all too familiar to Mr. Hacking.
During a 1985-'90 stint at the Minnesota Public Employees Retirement Association, he helped restore confidence following allegations that his predecessor had used the fund's membership list to solicit campaign contributions for Minnesota lawmakers.
Then, before taking the Illinois job, Mr. Hacking helped bail out the Minneapolis public employees' pension fund. His predecessor there had lost nearly $80 million - 10% of the fund's assets - through questionable investments in real estate and junk bonds. Six years later, under a new management team, the $1.1 billion fund's balance is at a historic high.
On the rebound
The Illinois fund's financial performance is rebounding. Analysts attributed the poor returns under Mr. Spice to a slumping stock market and failed real estate ventures, including $54 million lost on a Canadian developer that filed for bankruptcy in December 1994.
During the year ended June 30, the fund's rate of return was 18.3%, compared with a median 13.9% for public pension systems.
Mr. Hacking pointed to his track record at previous jobs - one that likely would be appreciated by his controversy-weary bosses.
"When I left," he said, "hardly anybody noticed."