California Public Employees Retirement System, America’s largest public pension fund, recently announced plans to investigate its relationship with placement agents after disclosing that former board member Al Villalobos received almost $50 million in placement fees for managers as a result of their winning business from the fund. News of the CalPERS probe is not the only reason to question the manager selection practices at the $199.4 billion public pension.

In 2003, former California State Comptroller Steve Westly met with Elliott Broidy, founder of private equity firm Markstone Capital Group, and former New York State Comptroller Alan Hevesi at CalPERS’ offices in Sacramento, according to public record. Not long after that meeting, CalPERS made the first of two commitments to Markstone.

Broidy’s wife, Robin Rosenzweig, was one the largest contributors to the Comptroller Westly’s 2004 election campaign. She also gave generously to Hevesi who, through his role as sole fiduciary of the New York State Common Fund, committed $250 million to Broidy’s private equity fund. According to Institutional Investor’s sources, Hevesi was also helping Broidy raise money for the Common Fund by reaching out to other officials with oversight for public plans – officials like the California Comptroller.

There is a shadowy world of backroom deals that all too often define how decisions are made at public pension funds, especially when hedge fund and private equity managers are involved. When public fund business is conducted in the dark it can lead to a rigged system where managers must pay to play. “Shadow Lands,” Institutional Investor’s October cover story, delves into the widespread concerns about corruption at public funds, and suggests what can be done to reform the system.

Click here to read the October cover story online, Pension Pay to Play Casts Shadow Nationwide