Obama chooses private equity professional to head US pension agency

US President Barack Obama has named Joshua Gotbaum, an operating partner with turnaround firm Blue Wolf Capital, as director of the Pension Benefit Guarantee Corporation, which guarantees the defined-benefit pensions of private employers in the US.

Gotbaum’s nomination must be confirmed by the US Senate.

Gotbaum’s appointment will not trigger a key-man clause at Blue Wolf, according to a spokewoman for the firm.

He joined Blue Wolf in December 2006 and has experience dating back to the administration of former US President Jimmy Carter in government roles. Gotbaum led and managed the turnaround of Hawaiian Airlines from 2003 to 2005 as Chapter 11 trustee. He also worked as an investment banker at Lazard Freres for 10 years.

If the Senate approves Gotbaum’s appointment, he will join the PBGC at a time when the agency has been trying to ramp up its commitment to private equity and real estate.

The PBGC decided in February 2008 to spend a portion of its $48.4 billion investment fund on private equity and real estate. PBGC planned to allocate $2.5 billion to the asset classes and hired Goldman Sachs, BlackRock and JPMorgan to manage the programme. The agency wanted to move into alternatives to battle a $14 billion deficit, which has now climbed above $30 billion.

The agency canceled the contracts with the firms in July after the director of the PBGC, Charles Millard, was accused of conflicts in the process of hiring the three firms, based on the findings of an internal audit.

Millard, who was appointed to the director role by former President George W. Bush, left the PBGC in January 2009.

As director, Gotbaum would help shape the investment strategy for the PBGC, but it’s not clear if he would continue to push the agency into alternative investments. As of 30 April, the agency was allocating about 2 percent of its assets to private equity and real estate investments, which it inherited from pensions it took over from bankrupt companies.

Blue Wolf, meanwhile, has been in the news in recent months in connection with a pension pay-to-play scandal that has started in New York State’s massive public pension and rippled outward to other states.

The firm’s co-founder, Josh Wolf-Powers, allegedly implied in a conversation in 2005 with Steve Rattner, head of Quadrangle Group, who was fundraising, that he would have to use a placement agent to do business with the New York City pension system. At the time, Wolf-Powers was a managing director at the city pension system.

Rattner eventually hired Hank Morris, who is accused of being the leader of ring of people who allegedly strong-armed private investments firms for sham finder’s fees in exchange for investments from the pension.

Wolf-Powers and Rattner have not been accused of any wrong doing.

Blue Wolf has been raising its debut fund and has collected about $118 million on its way to a $250 million target. The firm held a first close on $100 million last September. The firm, founded in 2005, previously raised money for specific investments.