May 15 (Bloomberg) -- The Pension Benefit Guaranty Corp. said it never fully implemented the “less conservative” investment strategy spearheaded by former Director Charles E.F. Millard, who is now under scrutiny for his ties to Wall Street.

The government-owned PBGC, which pays the pensions of 44 million people from bankrupt companies, hasn’t “actively put any money” into the “alternative” investments such as private equity and real estate that Millard championed, said Jeffrey Speicher, a spokesman. Millard, a Bush administration appointee, left in January when President Barack Obama took office.

About 30 percent of the $48 billion investment portfolio is in equities, 69 percent in fixed-income, and less than 2 percent in alternative assets, Speicher said today in an interview. Millard, who became director in December 2007, sought to deal with a budget shortfall by shifting more of the portfolio into higher-performing assets from the Treasury securities the PBGC traditionally favored.

The new strategy, approved by the board in February 2008, would allocate 45 percent of the portfolio to equities, 45 percent to fixed-income, and 5 percent each to real estate and private equity. The future of the plan was thrown into doubt after the House Education and Labor Committee said it was opening an investigation into Millard’s communications with Wall Street firms seeking contracts to manage the new investment strategy.

The committee released yesterday a draft report by the PBGC inspector general that alleges Millard, a former Lehman Brothers Holdings Inc. managing director, had inappropriate contact with JPMorgan Chase & Co., Goldman Sachs Group Inc. and at least six other firms that bid to manage $2.5 billion of new assets that could reap $100 million in fees. A lawyer for Millard, said his client acted in a “transparent and ethical manner.”

Portfolio Returns

The agency had been relying on Treasury bonds that produced more predictable, yet lower returns. The purpose of the new strategy was to reduce an $11 billion shortfall between the agency’s obligations to make payments to future retirees and the agency’s total assets.

The PBGC’s portfolio lost 6.5 percent in the fiscal year ended in September, compared with a gain of 7.2 percent in fiscal 2007, according to the agency’s annual report. The biggest percentage losses were in equity holdings, 23 percent, while fixed-income investments returned 1.6 percent. The portfolio largely mirrored the performance of PBGC benchmarks.

The PBGC plans to provide an update on its financial position at a previously scheduled Senate Special Committee on Aging hearing on May 20 about the agency and its ability to handle bankruptcies in the automobile industry, Speicher said. Millard has been subpoenaed to appear at the hearing.

‘Blackout’ Period

According to the inspector general’s report, Millard violated the PBGC’s so-called blackout period when he spoke with eight of 16 Wall Street firms bidding on three agency contracts. The report included e-mail messages from Wall Street executives to Millard on how he should draft official requests for bids on the contracts, and also show that Millard turned to a Goldman executive involved in the bidding to help him find a new job.

The report also includes allegations that Millard used his work e-mail to discuss with Rick Lazio, a senior executive at JPMorgan and a former U.S. Representative from New York, a job in the potential administration of John McCain. Millard was a volunteer in McCain’s presidential campaign.

Millard, in an April 28 letter to the PBGC included in the report, said the conversations he had were personal and unrelated to the contracts. He called the “rumor” that he was seeking post-PBGC opportunities “ridiculous.”

“I already had numerous contacts at such firms and had worked in senior roles at two of them in the past,” he said.

To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net

Last Updated: May 15, 2009 13:45 EDT