State Employees Association of North Carolina has asked the SEC to investigate whether a money manager doing business with the $90 billion North Carolina Retirement Systems, Raleigh, violated pay-to-play rules.
According to the association's complaint, Securities and Exchange Commission rules might have been violated by Carousel Capital co-founder and former White House Chief of Staff Erskine Bowles, who with his wife, Crandall, hosted a fundraiser in 2011 for state Treasurer Janet Cowell, the sole trustee of the pension fund. That same year, Charlotte-based Carousel Capital, which already managed some pension fund investments, was awarded a contract for the state's Innovation Fund. Ms. Bowles is on the board of J.P. Morgan Chase & Co., whose subsidiary, J.P. Morgan Asset Management, manages a real estate portfolio for the pension fund.
Ms. Cowell's spokesman Schorr Johnson said the issue, which also was raised in 2012, is “one without merit.” The treasurer's office verified with outside legal counsel that neither Mr. Bowles, who is currently a senior adviser with Carousel, nor his wife were covered by the SEC pay-to-play prohibition, and also ensured contractually that Carousel officials were compliant with the SEC rules. As of June 30, 2013, Carousel had a total of $46 million in private equity commitments from the pension fund. “If Carousel failed to comply with the rule, the investment would likely end,” Mr. Johnson said. Investments made through the Innovation Fund were not disclosed in pension fund documents.
A call to Carousel Capital was not returned at press time.
“Political issues have no role in investment decision-making — none, both by policy and practice,” Mr. Johnson said.
Ardis Watkins, SEANC legislative director, said the pay-to-play issue is part of a broader push for more disclosure of North Carolina's investment contracts and fees. “The No. 1 issue that keeps coming up is we can't see any of the documents. The Innovation Fund sounds good in theory, but when we dug deeper it looks like it's being used for political purposes,” Ms. Watkins said.
In April, the SEANC asked the SEC to investigate the fees paid to money managers doing business with the North Carolina Retirement Systems following a SEANC-commissioned forensic investigation of money manager contracts.
SEC officials declined to comment on either request.
