HARRISBURG -- “We're the NBA of investments," and don't need to hire just anyone, Tom Brier, ex-chief investment officer at the $20 billion Pennsylvania State Employees' Retirement System, told a federal jury in Harrisburg last week.
So that's why Brier said he was surprised back in 2014 when the system's then-chairman, Glenn Becker, kept urging him to meet with salesmen for an obscure, expensive, underperforming Paoli stock-index fund.
Why do I have to keep talking to these guys? Brier wondered.
In fact, Brier needed to show "respect" for the close relationship between the index fund's owner, political donor Richard Ireland, and Pennsylvania's then-state treasurer, Rob McCord, Becker testified Thursday during Ireland's federal bribery trial in Harrisburg.
Apparently, Brier said, he wasn't deferential enough. He told FBI investigators that Becker had threatened "to ding" Brier for his "sharp elbows" after the investment officer resisted hiring Ireland's fund, which was managed by Pacer Advisers of Paoli.
Ireland had started an investment model he called the Global Sales-Weighted Index. Unlike, say, funds based on the S&P 500 Index, which comprises 500 of the biggest U.S. companies mostly by stock value, Ireland's fund ranked the world's largest companies by revenues. It would own more Walmart than Apple, more Exxon than Google.
Ireland also offered a novel pricing formula: He'd charge a fee only in calendar quarters when his index beat the S&P 500.
His main client was McCord, who hired Ireland's fund to invest $325 million in state funds in early 2014. Pacer Advisors split the fees with Ireland.
In May 2014, Ireland's son Jon had lunch at Philadelphia's Union League club with Becker, who had been named to the pension board by then-Gov. Tom Corbett. Then Becker met with the elder Ireland at a King of Prussia hotel for breakfast.
The index sounded to Becker like an "interesting product," he testified Thursday. He told his staff to meet with Pacer in July.
The pension staff and their advisers saw little appeal in Ireland's fund. More often than not, its strange formula trailed more popular stock indexes. And it's unusual to base fees on three-month targets: That makes it way too easy to get paid amid long periods when a fund is doing poorly, testified Anthony Johnson, the system's outside adviser.
Johnson also noted that 85 percent of the Pacer fund's business was with just one client -- McCord's state treasury.
Computing Pacer's fees with the treasury, Johnson found they worked out to 0.26 percent a year -- many times more expensive than the sub-0.02 percent fees that BNY Mellon charged on its index funds.
Becker told staff in December 2014 to talk to Ireland's fund managers again. By then, the treasury's investment had trailed the regular S&P index in three out of five quarters.
Still, Becker testified, he told Brier in January 2015 that McCord had a special relationship with Ireland, and that Brier shouldn't officially turn Ireland's fund down until Becker could talk to the state treasurer.
Around that time, McCord was approached by the FBI, which had been secretly recording his self-incriminating conversations.
McCord quickly cooperated, helping the feds build a case against Ireland. He resigned, pleaded guilty to extortion, and became a star witness against his old friend and campaign donor, Ireland.
Brier didn't talk only to the FBI. He also told the state inspector general about Becker's comments, when the news came out this month, leading Gov. Tom Wolf to call on Becker to recuse himself from pension investment decisions, for now.