Callan Associates was sued for allegedly having conflicts of interest while it was general consultant for the $36.8 billion Illinois Teachers' Retirement System, Springfield, between January 2002 and March 2006. The lawsuit was filed on behalf of plan participant Patrick Patt in Cook County Circuit Court, Chicago, and seeks class-action status.
According to the lawsuit, Callan collected fees from investment managers attending seminars hosted by the firm at the same time it was "seeking, evaluating and recommending" potential investment managers for the pension fund, and "Callan's receipt of moneys from investment managers who may be bidding on TRS business or managing TRS investments puts Callan in conflict with its responsibility for reviewing the work of investment managers and recommending whether they are retained by TRS, and is a breach of Callan's duty of loyalty to TRS."
Callan's annual retainer from the retirement system for the period in question was $545,000, and a three-year contract extension at the end of 2002 added a bonus of $35,000 for each private equity partnership the system entered on Callan's recommendation, according to court documents.
Nancy Malinowski, a Callan spokeswoman, said the firm had not been served with a complaint and would not comment without reviewing its contents.
Illinois Teachers replaced Callan Associates with R.V. Kuhns as general consultant earlier this year, but Callan remains its real estate consultant until its contract expires on Sept. 30, said Eva Goltermann, spokeswoman. An RFP was issued in May and finalists are expected to be announced soon.
The potential for conflicts of interest at Callan was a concern for the system, but "it was not the predominant reason for the board to select R.V. Kuhns," Ms. Goltermann said, noting that Callan's recommended asset allocation provided good investment returns.
