April 12, 2014 By: Mark Glennon

Illinois pensions outsource most of the work managing their money to private sector investment advisors. The Illinois legislature is considering requiring those advisors, as a condition to getting any work from the pensions, to disclose how many of their senior staff are minorities, female or disabled, and how many contracts they have with companies that are minority owned or using minority staff for their work. The full text is here, sponsored by Senator James Clayborne (D-Belleville).

You’d think that, with all the problems our pensions are having, its managers should be selected purely on merit and track record. Not in Illinois. The bill is wrong-headed and would be nearly impossible to comply with.

“It’s just a disclosure, not affirmative action or a quota,” the bill’s proponents surely will argue. Readers here know how these things work — public disclosure requirements like this are a means of pressuring investment advisors into hiring minorities instead of the candidates they prefer.

If that’s not enough, consider how burdensome the disclosure requirement is written:

-The investment firm would have to go through all its contracts and figure out if they are with minority firms.

-For its contracts with non-minority owned companies, it would have to determine if more than 50% of the work delivered under each contract is from a minority person, and disclose the number of those contracts. For example, if the firm hires a design shop to make a logo and marketing materials, it would have to determine how many minority persons work on the project.

-To determine what “minority owned” means, it will have to master the definitions incorporated from the Business Enterprise for Minorities, Females and Persons with Disabilities Act, which is no small feat.

This bill is emblematic of what the business community means when it complains about a hostile environment in Illinois. How detached from reality are legislators who support something so burdensome? And even if it’s rewritten to be less burdensome, the best fund managers get to pick and choose which states’ pensions and other money sources they work for. It’s well known that, especially in private equity and venture capital, the best performers are repeat best performers, so it’s hard to place your money into their funds. Why would an investment advisor like that bother with a state that’s considering something like this?

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6 years ago

You could add that Illinois pension trustees are mostly political appointees and union members, so they ones who are likely to make decisions based on these disclosures, as well as on the blacklist published by the teachers union. All the more damage this does to the pensions.