In my piece for the current issue, I take a look at a fledgling, under-the-radar effort to rein in some of the Wall Street billionaires cutting huge checks to SuperPACs. Some state treasurers, I reported, are considering using their state’s pension funds as leverage to pressure Wall Street private equity and hedge fund mangers to disclose more of their political contributions or risk losing the right to manage big chunks of the pension funds’ money. The idea is sure to be controversial but its logic is plain: if state pension funds are paying millions in management fees to the financiers, shouldn’t they have some say in assuring that the financiers’ political spending is above board?

Well, today comes indication that state pension funds may have even more leverage over the money managers than my article let on. Julie Creswell reports on the front page of the New York Times that pension funds investing heavily in “alternative investments” are getting worse returns than many states with more traditional investments—and yet the first group of states are still paying huge management fees to the private equity firms and hedge funds. This suggests that pension funds should have even more reason to pull their money out of private equity firms and hedge funds, and that these firms should have all the more reason to respond to demands for greater disclosure in political giving.

And as it happens, one of the states that has been least well-served by its alternative investments is the one that I reported seemed the furthest along in considering using its investments as leverage to spur greater disclosure: California. Creswell writes:

Fees for the $242 billion in California’s giant state pension system, known as Calpers, nearly doubled, to more than $1 billion a year, after it increased its holdings in private assets and hedge funds to 26 percent of its total in 2010, from 16 percent in 2006.

Calpers, which has earned 3.4 percent annually over the last five years, is pushing the managers of the funds for lower fees as well as reducing the number of outside managers it uses to try to bring costs down.

“I think it’s part of our job as public fund managers to do our best to drive a better bargain,” said Joseph A. Dear, the chief investment officer for Calpers.

Keep an eye on this nexus, which I’m pretty sure we’re going to be hearing a lot about as the year goes on. On the one hand, private equity firms under fire for their business practices and tax avoidance (especially a Boston-based one associated with a certain presidential candidate) are going to keep defending themselves by noting that much of the money they invest comes from pension funds and university endowments, not just rich folks. This is a valid point and one that raises the question of why public employee unions with a say in how their pensions are invested have been so willing to turn a blind eye to the private equity practices they are quick to criticize when it comes to Mitt Romney and Bain. On the other hand, some Democratic pension fund overseers are starting to realize that they can work the relationship to their favor, too, by trying to limit, or at least bring greater transparency to, the wave of political giving flowing from financiers to Republican-affiliated SuperPACs. State pension funds are admittedly as un-sexy a subject as there is, but they and their billions could have a central role in the unfolding campaign.

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