Lee Fang is a reporting fellow with The Investigative Fund at The Nation Institute.

Four months into his first term, Governor Chris Christie stood at the podium of the Manhattan Institute, a conservative think tank, and laid out what was billed as the “Christie Reform Agenda.” To enthusiastic applause, the New Jersey governor railed against what he described as an out-of-control state public pension system. “Our benefits are too rich, and our employees aren’t contributing enough, either,” he said. “We are careening our way toward becoming Greece.”

Christie had just won his first statewide election with the help of Paul Singer, the hedge fund manager who chairs the Manhattan Institute. The month before Christie’s election victory in November 2009, Singer had given $100,000 to the Republican Governors Association (RGA), which aired a barrage of advertisements in Christie’s favor.

In that campaign, among Christie’s lines of attack against incumbent Democrat Jon Corzine was that he had mismanaged the state pension system and had unethically invested retiree money on Wall Street. “Jon Corzine made it easier for his friends from Wall Street to manage New Jersey’s pension fund,” blasted a “Christie for Governor” press release.

But once he was elected, Governor Christie moved to award big pension management contracts to the Wall Street donors who have helped boost his political fortunes. In his second year in office, Christie’s administration proposed giving Singer’s hedge fund, Elliott Associates, a contract to manage $200 million in state public pension funds. Elliott Associates won the contract in 2012. Singer again demonstrated his political loyalty to Christie in December 2013, shortly after Christie became chair of the RGA, a coveted post for GOP presidential aspirants. This time, Singer gave the group $1.25 million, making him the largest contributor that year and significantly enlarging the RGA’s war chest under Christie.

Another hedge fund manager with close political ties to Christie, Daniel Loeb, has also won big contracts to manage state retiree money under the governor, The Nation has found.

Before it was tarnished by Bridgegate, Christie’s political brand hinged on the governor’s celebrated efforts to reform the public pension system—including his moves to increase the retirement age for some workers, cut benefits, and make adjustments to how much state employees pay into the plan. Less noticed was how, under Christie, the amount of retiree money in the hands of outside managers, such as private equity firms or hedge funds like Singer’s, dramatically increased, while the share going to less risky and more traditional investments like treasury notes or the S&P 500 declined.

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Like many of the characters in the Bridgegate scandal, a key player in the Christie pension cronyism story has roots in his hometown of Livingston, New Jersey.

Before Christie was named class president of Livingston High School, another ambitious young man, Robert Grady, held that title. Grady helped bring a teenage Christie into local politics by introducing him to his father, the mayor of Livingston. The younger Grady would become something of a mentor to the future governor: he introduced Christie to political leaders in Trenton and, later, to GOP leaders like Dan Quayle and Jim Baker. Bill Palatucci, who would become Christie’s law partner and close political adviser, also came into contact with Christie through Grady, according to an interview that Grady gave to the Eagleton Institute of Politics at Rutgers University.

Grady’s career, including a stint in the George H.W. Bush administration, eventually evolved into work in private equity. He spent a number of years at the Carlyle Group before becoming managing director of Cheyenne Capital, a Wyoming-based private equity firm. In 2010, Christie named him to the State Investment Council, which oversees New Jersey’s Division of Investment and has ultimate authority over how the pension funds get invested. He quickly became chair, an unpaid position of great influence. In an address to the Legislature last year, Christie personally thanked Grady for leading the pension system and investing the state’s money “wisely.”

“I think we’ve done a great job of having no politics in the system,” said Grady in an interview with The Nation. “We’ve kept the focus on maximizing returns for the beneficiaries while minimizing risk appropriately.”

But others argue that the close relationships between politicians, trustees, investment advisers and campaign contributors are a recipe for financial decision-making that puts private interests ahead of the public good. “There is no question that the current system in which politicians pick trustees, and trustees and their companies contribute to political entities that support the same politicians, is a type of institutional corruption that should not exist,” says Jay Youngdahl, an attorney and Network Fellow at the Edmond J. Safra Center for Ethics at Harvard University.

New Jersey law prohibits financial firms that manage state retiree money from contributing to state political campaigns. In 2010, the Securities and Exchange Commission also promulgated new rules to curb direct campaign donations to officials in charge of public pension programs. The regulations, however, do not necessarily cover the outside spending organizations—i.e., Super PACs—that have come to dominate recent elections.

The RGA—a 527 organization that can accept and spend unlimited amounts of money, much like a Super PAC, and that has frequently fueled the presidential bids of GOP governors—has allowed hedge fund managers to boost Christie’s political fortunes without running directly afoul of ethics laws.

In Christie’s first election as well as his re-election campaign last year, the RGA spent big to sweep him into office. In his first race for governor, the RGA provided a critical $5 million in outside spending on Christie’s behalf. In 2013, the group spent more than $1.7 million in support of Christie’s bid to defeat challenger Barbara Buono, a Democratic state senator.

Loeb, the founder of a hedge fund called Third Point and, like Singer, one of the most active GOP donors in the country, was also a major contributor to the RGA, donating $250,000 last year. Two years prior to Loeb’s donation, Christie appointees at the pension fund awarded Third Point a contract to manage $100 million in state retiree funds.

In 2011, Loeb and Singer reportedly joined other Republican financiers in what The New York Times dubbed the “Draft Christie committee” to urge the governor to run for president. At the time, Loeb’s fund had already commenced its contract to manage New Jersey pension money, and Singer’s fund had just been presented to the State Investment Council.

When asked about the contributions of Singer and Loeb to political groups supporting Christie, Grady said, “I’m not familiar with their giving, so I can’t really answer it. I’m aware the state has invested in them, and I’m sure the state has invested in many funds that have given to either party. But as far as who they’ve given to and what their conflicts may be, it’s not something that has come before our council and not something I’ve tracked.”

Grady, in fact, served as a strategist for the governor’s re-election campaign. How plausible is it that the man charting Christie’s long-term political future was unaware of the largest donations to a committee that Christie now helms, and which played a crucial role in financing his campaigns?

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State pension plans that rely on hedge funds and other so-called “alternative investments” perform worse overall than those with more conservative strategies such as Treasury notes or the S&P 500, according to many studies, including recent reports from the Maryland Tax Education Foundation and Yale professor Roger Ibbotson. Critics charge that hedge funds not only are far more risky investments, but also that they produce less value because they carry hefty management fees and are entitled to a portion of future profits.

Early in his administration, Christie appointees at the Division of Investment pledged to double its allocation for “alternative investments,” with a goal of moving 33.2 percent of the $74.7 billion fund into an array of hedge funds, private equity firms and real estate deals. “For large pools of capital, I think it’s prudent to have both private equity and hedge funds as part of the mix of a diversified portfolio,” said Grady in 2010, shortly after voting to substantially increase the amount of New Jersey pension funds managed by hedge funds and other alternative investments.

“This started with Corzine,” says Hetty Rosenstein, head of CWA New Jersey, part of the Communications Workers of America, a union that represents many public workers in the state. “Many years ago, these investments were very conservative. But now they’ve changed that, and we’re invested in hedge funds and much more volatile investments from outside managers with high fees.”

According to industry reports, New Jersey now has the second-largest allocation in the country of state retiree money being managed by hedge funds. In 2013, the New Jersey pension program delivered a return of 11.79 percent—lower than the pension median of 16.1 percent that year. Part of the lower return, according to analysts, related to the amount allocated to alternative funds rather than to US equities. Fees also contributed to the smaller return. For example, hedge funds typically charge a 2 percent management fee on top of a 20 percent performance fee. The fees can quickly eat into any future gains, while making losses even more painful. In contrast, index funds or other, more traditional investments carry few (if any) fees.

A spokesperson for the Division of Investment disputed this characterization, claiming that any shortfall in the New Jersey pension fund’s performance in 2013 was the result of its relatively diversified portfolio, which has contributed to its steady performance in recent years.

But for critics, the long-term risks and the fees attached to alternative investments simply don’t justify the payoff. Chris Tobe, a former trustee of Kentucky Retirement Systems, estimates that outside money managers for the alternative investment program earned about $1.2 billion in management and performance fees from New Jersey’s public pension plan in 2013. “No wonder Wall Street loves Christie,” Tobe remarks. He estimates that in 2013 alone, Loeb’s fund collected nearly $5.2 million in fees from the New Jersey public pension fund, while Singer’s fund collected about $8.6 million.

The push for bigger investments in hedge funds was not a unanimous decision. James Marketti, a union representative on the State Investment Council, protested the move vehemently.

“I objected to the alternatives continually, because they are inherently more risky and certainly more corrupt,” Marketti says. He’s a retired former president of CWA Local 1032 and served on the board from 2008 to 2012 as the AFL-CIO Public Employee Committee representative. He says he presented research to the board on the fees associated with alternative funds, but he was also suspicious of finance industry cronyism.

“They all do business with that side of the universe,” Marketti says, pointing out that the Corzine and Christie administration appointees to the Division of Investment maintained cozy relationships with the same private equity and hedge fund managers that have won large state pension contracts.

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The Christie administration’s embrace of exotic investment funds contrasts sharply with his rhetoric as a candidate, when he criticized Corzine’s experiment with alternative investments, which began in 2006. Christie called on Corzine to personally divest from TPG, a private equity firm that the state pension fund had invested in during his tenure. “It’s one thing for Jon Corzine to gamble with his own personal wealth, but it’s another to put at risk New Jersey taxpayer dollars by turning them over to his casino-license-holding partners at TPG,” said then-candidate Christie.

Christie campaign allies also went on the attack. Bill Baroni, a Republican politician forced to resign from the Port Authority over his role in the Bridgegate scandal, said Corzine’s decision to use pension fund money on alternative investments “opened up the door to the perception of politics.”

To watchdogs of state pensions, the Christie cronyism story is just the latest example of Wall Street gorging at the public trough. In Rhode Island, State Treasurer Gina Raimondo, a Democrat, has faced criticism for receiving political support from hedge funds that have been given large management contracts for the state pension program under her leadership.

“The huge increase in ‘alternative investment’ management fees over the past five years at public pensions has created multiple conflicts and potential for conflict,” says Tobe, a former whistleblower on fraud at the Kentucky pension fund and author of the book Kentucky Fried Pensions.

To other critics, the Christie administration’s management of the state pension program is characteristic of a governor who seeks to reward his friends, while sometimes ruthlessly punishing his opponents.

“This Livingston High School reunion thing that goes on with Chris Christie… David Wildstein, involved in Bridgegate—he went to high school with Chris Christie. Now you’re talking about Bob Grady—he goes back to high school with Chris Christie,” says Rosenstein. “He’s got these long-term relationships with people who then benefit enormously.”