Will Pay-to-Play Enter New Jersey Gov Race?

New Jersey does not have a long history of investing in private equity, making its first fund commitments just four years ago. But that doesn’t mean that private equity won’t become an issue in next week’s gubernatorial election, where incumbant John Corzine is struggling to fend off Republican challenger Chris Christie.

Christie needs to land just a few more body blows, and word is that he may try a last-minute attempt to link Corzine with the growing rash of pay-to-play scandals involving state pension systems and private equity.

To be clear, there have been no formal or informal allegations of wrongdoing against the New Jersey Investment Management Board, which had invested in 88 private equity funds through June 2008 (carrying value of $2.85 billion). What we hear, however, is that Christie’s campaign may raise the specter of impropriety, in the hopes that the talking point sticks in voters’ minds on election day.

Specifically, Christie would focus on New Jersey’s decision to do business with three firms that have figured prominently in scandals elsewhere: Apollo Management, The Carlyle Group and The Quadrangle Group.

Apollo would be the most direct connection, because it used ARVCO to raise money from New Jersey. For the uninitiated, ARVCO founder Al Villalobos currently figures into a political corruption investigation in California (although he is not personally being investigated), and there were lots of questions raised last month when the California Public Employees’ Retirement System (CalPERS) released details of ARVO’s contractual arrangements with CalPERS. It is important to note, however, that a peHUB search of New Jersey election records find no mention of Villalobos, ARVCO or other ARVCO employees contributing to New Jersey elected officials.

The Carlyle and Quadrangle relationships hits closer to home, in that each was cited by New York AG Andrew Cuomo for using indicted placement agent Hank Morris to secure business from the New York Common Retirement Fund. Carlyle even agreed to repay $20 million, without acknowledging any wrongdoing (Quadrangle is said to be interested in settling, but hamstrung by the obstinance of former partner Steve Rattner). Moreover, Morris’ firm used to employ ex-NJ Senator Bob Torricelli.

Tying New Jersey to that scandal, however, would be specious. Neither Carlyle nor Quadrangle used Hank Morris to secure business from New Jersey, according to this memo. Instead, Carlyle used its in-house team, while Quadrangle used a reputable agent named The Monument Group.

Specious attacks, however, are perfect for the final weekend of a campaign. In addition, Christie could legitmately point out that the investments in Apollo and Quadrangle are both underwater (he might also be able to claim it of the three Carlyle funds — Carlyle Mezzanine Partners, Carlyle Mezzanine Partners II and Carlyle Reality Partners V — but I’ve been unable to find recent performance data on them).

Christie’s campaign has not yet returned requests for comment (I’ll update this post if they do).