The New Jersey State AFL-CIO is calling for the State Ethics Commission to investigate whether political contributions benefiting Gov. Chris Christie and the Republican Party improperly influenced investments in hedge funds and private equity made by the State Investment Council, and the role of the council's chairman, Robert Grady.
The Trenton-based Division of Investment Management manages the state's $76.8 billion in pension assets, and is overseen by the investment council.
In the 11-page complaint filed Friday with the ethics commission, state AFL-CIO President Charles Wowkanech said “public reporting reveals that the Division of Investment Management … under the governance and direction of the State Investment Council and Chair Grady, has chosen to invest pension funds into hedge funds and private equity firms after their principals have made political contributions that benefit the governor and the Republican Party.”
Chris Santarelli, a spokesman for the New Jersey Treasury Department, which oversees the investment management division and council, said in an e-mailed statement that “the investment council provides policy and governance oversight (and) does not select managers or vote on manager selection. The complaint should be clear to any educated observer as nothing more than a cheap political stunt.”
Investments with financial firms making political contributions are prohibited under pay-to-play restrictions for the investment division and other state offices. Those rules were amended by the state to exclude politicial parties in March after the political contributions in question were made, the complaint alleges.
Citing Mr. Grady's role as “an active and high-level participant in Christie's political re-election efforts,” the complaint alleges that Mr. Grady violated the division's own rules, “and has further created an appearance of impropriety.”
Mr. Grady, who was first elected as investment council chairman in September 2010, is managing director of Cheyenne Capital, a private equity firm based in Denver. Before 2009, he was a managing partner with The Carlyle Group, which has contracts with the investment division.
Mr. Grady could not be reached for comment.
Fees for alternative investments with “politically connected” fund managers have tripled during Mr. Christie's tenure, according to the complaint, which cites political contributions made to the governor or his party by The Blackstone Group, Third Point LLC and others.
The State Ethics Commission can investigate possible violations of ethics rules, but can also forward pay-to-play violations to other authorities at the state or federal level. “We are looking at other options,” beyond the ethics commission, said New Jersey AFL-CIO spokeswoman Angela Delli Santi in an interview.
In 2010, the Securities and Exchange Commission adopted new pay-to-play rules that ban investment contracts with government clients within two years of making political contributions; in June, it settled the first case, against TL Ventures Inc., a Wayne, Pa., private equity firm where some employees made contributions within two years of getting investment contracts with the $27 billion Pennsylvania State Employees' Retirement System, Harrisburg, and the $4.5 billion Philadelphia Board of Pensions and Retirement.
The New York State Republican Committee and Tennessee Republican Party are challenging the SEC rules in U.S. District Court in Washington. A hearing on the plaintiffs' motion for a preliminary injunction was scheduled for Friday.