Daley's nephew gets break from city pension funds Vanecko gets to put less of his own money in risky deal
BY TIM NOVAK Chicago Sun-Times Reporter
they started their real estate investment company three years ago,
Mayor Daley's nephew Robert Vanecko and his partners made a promise to
five City of Chicago pension funds they were seeking as investors:
put $7 million of our own money into the deal to show we believe in our
high-risk strategy of investing city retirees' pension money in
developing inner-city neighborhoods.
assurance helped the start-up venture known as DV Urban Realty Partners
quickly land $68 million from the city pension funds.
But now it turns out that Vanecko and his partners -- Chicago
developer Allison S. Davis and his son Jared Davis -- will put in just
$3.5 million, half of what they initially promised.
Despite some concerns, the city pension funds quietly agreed to
rework the deal with Vanecko and the Davises last August, making
changes that financially benefitted the mayor's nephew and his
partners, recently subpoenaed records show.
Vanecko -- whose dealings have come under scrutiny by the U.S.
attorney's office in Chicago and the city's inspector general --
personally lobbied city pension officials to rework the deal with his
company, records show.
Three of the five pension fund boards voted on and approved the
changes -- funds representing police, laborers and municipal employees.
Each of those pension fund boards includes high-ranking members of the
Daley administration who voted to approve the reworked deal.
The approval of just three of the five pension fund boards was
needed. So once those three agreed, the pension funds for Chicago
teachers and CTA employees didn't even vote on the reworked deal with
Which apparently was fine with CTA pension board executive director
John Kallianis, who wrote in an Aug. 22, 2008, e-mail to his
counterpart at the teachers pension fund: "I was hoping we could sit on
Vanecko's negotiations with the pension fund officials are outlined
in e-mails and other documents that a federal grand jury recently
subpoenaed. Authorities are looking into how the pension funds decided
to invest with the mayor's nephew, even though his new company had no
track record; acknowledged that, despite potentially big payouts, its
investment strategy was high-risk, and had been turned down by six
other government pension funds.
Two weeks after the grand jury subpoenas were issued, Vanecko
announced in June he would leave DV Urban by July 1. Neither the
company nor pension officials would say if Vanecko has indeed left the
company he started with Allison Davis, a longtime Daley ally in the
city's African-American communities. Davis formerly headed a small
Chicago law firm whose staff once included a then-young attorney named
"We are continuing our discussions with Mr. Davis regarding Mr.
Vanecko. In light of those ongoing discussions, we do not believe it is
appropriate at this time to comment,'' said Michael Fishman, an
attorney representing the three city employee pension funds that
approved the reworked deal with DV Urban.
Fishman was hired by John Gallagher Jr., executive director of
Chicago's police pension fund, who led the negotiations to redo the
deal. Gallagher cited potential federal tax liabilities that he said
the pension funds could face if DV Urban's real estate deals ended up
turning a profit by the time the deal expires in 2014. So far, DV
Urban's investments have fallen in value, which it has blamed largely
on the recession.
The new deal gives one key new benefit to the pension funds: They
are now guaranteed that they will get back all of their initial
investment before DV Urban is paid any incentive fees.
Under the revisions, DV Urban would still be able to collect as much as $8 million in management fees from the pension funds.
It also gets an extra year to invest the pension money, a quicker
return on its investment, and the halved requirement for investing its
own money, to $3.5 million.
The subpoenaed records show the city pension fund managers had
concerns about reducing DV Urban's initial promise to invest $7 million.
"We want DV to have as much skin in the game as possible,'' James
Mohler, of the municipal employees pension fund, wrote in a July 21,
2008, e-mail to the executive directors of all five pension funds.
Fishman wrote in an e-mail that same day that the reworked agreement
is "a much better deal'' for the pension funds because DV "gets no
money until we get paid.''