An Embarrassment of Riches

Business Big Shots Invest Heavily in Democrat McCall’s Political Future

Already controlling more money than any other person of color in the history of the planet, H. Carl McCall got the strangest break last November in his quest for the governor's office: his party lost the White House. Records show that McCall has raised bundles of big money from investment firms that do business with the state's common retirement fund, which he controls. The Democrats' loss makes it unlikely that a proposed ban on such fundraising will be enacted.

That's the best news for McCall, who faces a battle against celebrity Andrew Cuomo in the 2002 primary, and if he's lucky, the skilled fundraiser George Pataki in the general election. The money from investment executives is already pouring into McCall's campaign coffers. The state pension fund is a $130 billion monster, the second largest in the country. And McCall is the officially designated "sole trustee" of the fund. (In comparison, Bill Gates controls only $63 billion; the Sultan of Brunei, even less.)

McCall personally is one of the largest institutional investors in the world. The stock market boom has more than doubled the state's pension fund since McCall was appointed to office in 1993.

The CRF's payouts in retirement and death benefits amount to spare change. For the fiscal year that ended March 31, 2000, the CRF doled out $3.8 billion to retirees and their survivors.


"When I call up and say I'd like to talk to the CEO of a company and he looks on his screen and sees that we own more than 1 million shares of his stock, he says, 'How soon can we talk?' "


The pension fund's real business is making money. In interest alone, the CRF earned $2.5 billion during the last fiscal year. And it has as much money invested in real estate as it does in retirees.

The pension fund owns $3.7 billion worth of property, including the tallest building in Seattle and a share of the biggest collection of warehouses in the nation. It holds the mortgages on apartments, houses, and office buildings across America. The CRF has enough money left over to own nearly $83 billion worth of stock.

In 1988, the Daily Newsinvestigated then comptroller Ned Regan for allegedly soliciting campaign contributions from business executives who dealt with the pension fund. A later probe by Manhattan district attorney Robert Morgenthau turned up nothing criminal, however.

Now, 12 years later, the Daily Newsis chummy with the pension fund at the corporate level. The newspaper's owner, Mort Zuckerman, is partners with the CRF in development projects through his company Boston Properties, and they jointly own a Boston skyscraper.

CRF finances projects with numerous other landlords and developers, and many of them give hefty campaign donations to McCall. Some of the donors to McCall are otherwise stalwart GOP contributors, according to federal and state campaign-finance records.

McCall spokesman Jeff Gordon says the comptroller "absolutely does not" solicit campaign funds from the firms that do business with the pension fund. Gordon insists that there is "a definite fire wall" between McCall's political activities and the operation of the pension fund.

"Every vendor, every organization, the brokers, folks in private equity—they're all selected through a competitive process," says Steven Greenberg, McCall's director of communications. "As the sole trustee, he has not once rejected a recommendation from his staff."

Greenberg contends that McCall has always been a supporter of campaign finance reform. "He believes we should eliminate even the appearance of impropriety," says Greenberg.

Like any other powerful business person, however, McCall is not exactly passive. The comptroller himself has said that he carries weight. As he told Black Enterprise magazine in 1998, "When I call up and say I'd like to talk to the CEO of a company and he looks on his screen and sees that we own more than 1 million shares of his stock, he says, 'How soon can we talk?' "

Thanks to Al Gore's loss, McCall is likely to continue spending a lot of time on the phone with executives. During the Clinton era, the Securities and Exchange Commission cracked down on "pay to play" in the municipal-bond business—campaign contributions from brokerages and bond attorneys to local officials from whom they get business. A similar ban on influence-peddling between politicians and fund managers in the multi-trillion-dollar public pension fund investment business was proposed by SEC chairman Arthur Levitt two years ago. The new rule would prohibit fund managers from receiving compensation for two years from states and localities whose elected officials had accepted contributions from them.

The proposed rule was strongly opposed by politicians and fund managers alike. But last week, the SEC announced that it wouldn't take final action until President Dubya appoints a successor to Levitt, who will step down this month. Don't count on a GOP president restricting campaign contributions from business people.

It may be that such influence-peddling is just helping even things out. The New York Timeshas turned up its editorial nose at the practice. But the small gaggle of people of color who are fund managers and investors pointed out that the call for a ban in 1999 was emerging just as women and minorities were making inroads in the investment business. "The larger firms have benefited; now that smaller firms—which have always been at a disadvantage—are participating in the process, the [larger firms are] trying to prohibit it," one minority exec told the trade journal Pensions and Investmentsin questioning the timing of the proposed ban.

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