The only thing Illinois Gov. Bruce Rauner wants to say about his state’s pension system is that he thinks the required payouts are so burdensome, there should be a constitutional amendment that would allow him to cut them.

Rauner himself is a former private equity executive who managed hundreds of millions of dollars from public pension funds (including some in Illinois). As the pension funding crisis has become increasingly acute, he has avoided talking about how his own industry may have contributed to the crisis: specifically, through high fees and underperformance -- and, according to a new report, influence peddling.

The analysis comes from researchers at the U.S. Securities and Exchange Commission, University of California at Berkeley’s School of Law, and the University of Oregon. It indicates that pension investments hawked by the finance industry’s politically connected salesmen -- known as “placement agents” -- are delivering inferior returns in comparison with investments that pension officials pick on their own. Rauner’s firm, GTCR, in which he retains a substantial equity stake, admits in SEC filings that it uses placement agents to raise money from public pension funds. William Atwood, the executive director of the Illinois State Board of Investment, told International Business Times that GTCR had used a placement agent to raise money from a state pension fund. 

Placement agents have long been sources of controversy. Critics say they are a pernicious form of lobbyist, pushing public officials into basing pension investment decisions on political influence rather than financial metrics. Adding to that criticism is the fact that many placement agents have no background in financial expertise, but are political players. In recent years, placement agents have been at the center of high-profile corruption prosecutions, one involving the former New York state Comptroller Alan Hevesi (and with him the Obama administration’s former so-called car czar Steven Rattner), and the other involving Federico Buenrostro, the former CEO of the nation’s largest pension fund.

This new study suggests the involvement of placement agents in pension investments may have significantly worsened pension liabilities in states that were already facing substantial gaps between what they’ve saved for workers’ retirement and what they are contractually obligated to pay out in benefits.

In Illinois, where Rauner is pushing retirement benefit cuts, the trend is illustrative. There, the $18.9 billion Illinois State Universities Retirement System (SURS) used placement agents for 15.6 percent of its private equity investments -- which then underperformed the pension fund’s other private equity investments by -9.2 percent. The underperformance may have cost the system hundreds of millions of dollars, money could have been used to shore up the plan’s funding.

The SURS declined to comment on the study in response to queries from IBTimes.

While the SURS was among the worst performers, it was not the only pension fund that lost out through the use of placement agents. Overall, the study showed that private equity investments that used placement agents delivered almost 7 percent lower returns than those that did not.

The report looked at the effect of placement agents on systems beyond Illinois as well. In California, recently rocked by a corruption scandal, the two largest pension funds saw placement agent-related underperformance of -1.4 percent and -2.7 percent, costing tens of millions of dollars. And in Virginia, which has a $23 billion unfunded liability, the effect is most pronounced of all: -12.7 percent.

The report also shows the placement agent trend affects not just pension systems but also public universities: The University of Michigan’s endowment saw the portion of its portfolio represented by placement agents suffer from -13.7 percent in underperformance.

“Public pension plan need placement agents like a dog needs ticks,” said former Kentucky pension trustee Chris Tobe. “There is no need for placement agents since all major plans have consultants who are supposed to vet managers.”

In June 2014, the New York City Retirement Systems banned placement agents, following a trend among other pension funds around the nation. Still, despite recent scandals, a nationwide ban by the SEC -- which was proposed yet abandoned after industry pressure in 2011 -- appears unlikely.