Wall Street and public pensions. A license to steal.

North Carolina has the 7th largest public pension fund in the United States.

It has one trustee. She is the State Treasurer Democrat Janet Crowell.

Before becoming State Treasurer she was  the marketing director for the tech-focused firm SJF Ventures.

Crowell has moved up to $30 billion of pension money to managers in high-risk, high-fee Wall Street firms. North Carolina could soon be paying $1 billion a year in fees to those firms.

We know this because the State Employees Association of North Carolina released a 147-page report from former SEC investigator Ted Siedle.

According to a story by David Sirota in Pando Daily,

The report also noted that the investment strategy “has underperformed the average public plan by $6.8 billion” and it alleged that Cowell has misled the public about how where exactly she is investing taxpayer dollars. The union has called for a federal investigation, while Cowell has publicly denied the allegations.

Crowell and some North Carolina legislators with histories in the financial markets want to make any knowledge of how public pensions are invested a secret.

Cowell’s allies in the legislature filed a bill to serve as a replacement for the transparency legislation. Upon that replacement bill being introduced, Cowell issued a press release endorsing it. Proposed only days before the SEC sounded the alarm about a lack of transparency in the private equity industry, Cowell’s legislation claims to be about transparency, but weaves in provisions that seem designed to enshrine the exact opposite.

Specifically, section 3(b) of the proposal says that if Wall Street firms demand secrecy, the law will automatically bar the public from viewing key information about public pension investments for 10 years after the investment is terminated. That includes, according to the bill draft, “information regarding the portfolio positions” of public pension fund investments; “capital call and distribution notices” sent to state pension officials by investment firms; investment firms’ “private placement memorandum and other offering and marketing material”; and, perhaps most important of all, “the investment’s contractual documents.”

According to the North Carolina House’s website, two of the lawmakers sponsoring the bill currently work in the financial industry – one is described as a “financial consultant,” the other is described on the website as “Vice President & Investment Officer – Wells Fargo Advisors.” The State Treasurer’s 2013 report notes that Wells Fargo does brokerage business with North Carolina’s pension system.

Meanwhile in a Sirota story out yesterday, Warren Buffett warns against investing public funds in so-called alternative investment schemes. These are investment plans that are high-risk, high-fee investments Wall Street hedge fund managers engage in with our money.

Think about it: unlike Buffett and other individual investors who work with their own personal money, politicians who control public pensions are investing other people’s money. Additionally, unlike Buffett and individual investors, many politicians who oversee pension funds are trying to raise election campaign money – and a lot of that money tends to come from the financial industry.

Thus, with no personal resources in the game, but with a distinct political incentive to enrich potential financial industry donors, politicians who oversee public pension policy may have more of a motive to ignore Buffett and to ignore all the data buttressing his advice against alternative investments. They may be making financially irrational decisions for pensioners when they allocate yet more public money to VCs, hedge funders, and private equity mavens. Yet those decisions can be politically rational for the politicians themselves.

In the battle to control the $3 trillion pool of capital that now resides in America’s public pension systems, the difference between financial and political motives may be the most insidious problem of all.