Minutes after supporters of Gov. Bruce Rauner assumed leadership of one of the biggest government pension funds in Illinois, they shook up the way hundreds of millions of dollars are invested — in the process ousting a union-run money manager.

The Republican governor’s appointees to the Illinois State Board of Investment voted to shift $697 million into investments designed to mimic the financial markets’ performance — a move the board’s new chairman says will benefit taxpayers by slashing multimillion-dollar money-management fees.

In line with Rauner’s anti-organized labor stance, one of the managers the board dumped was Ullico, a union-owned investment firm that lends money to construction projects that agree to hire union labor.

The board’s vote to pull its $65.4 million investment in Ullico’s “J for Jobs” fund was along political lines. The four Rauner appointees and two Republicans who are on the board because of other offices they hold voted to dump Ullico. Two Democratic elected officials and a union leader voted “no.”

Marc Levine, the Rauner appointee elected board chairman at the start of the Sept. 17 meeting, says the governor’s battle with organized labor had “absolutely” nothing to do with the decision.

Says Rauner spokesman Lance Trover: “The governor’s office does not, and did not, instruct the Illinois State Board of Investment on how to invest taxpayer dollars.”

Unlike the three other firms that the Rauner appointees voted to terminate, Ullico wasn’t fired for “underperforming” on investment returns.

Rather, the company had been placed on the state pension board’s “watch list” because too much of its portfolio — 52 percent — was being held in cash, waiting to be lent. Ullico’s returns, though, had been slightly better than those of investment funds it was measured against, board records show.

The firm’s current Chicago investments include the Wolf Point and River Point developments along the Chicago River. Ullico also has lent money to build Trump Tower, the Aqua building and dozens of other buildings citywide.

Rauner has made limiting organized labor’s negotiating power in both the public and private sectors a priority.

“I think any investment that yields a good return and puts people to work in the state of Illinois is a good investment,” says Democratic state Treasurer Michael Frerichs, who voted to keep Ullico. “Ullico invests in construction projects. They require those projects to pay union wages.”

State Treasurer Michael Frerichs, a Democrat, voted to retain Ullico.   AP file photo

State Treasurer Michael Frerichs, a Democrat, voted to retain Ullico. Sun-Times file photo

But Levine says Ullico had “a really terrible problem: We were paying them fees for putting money in a mattress. . . . Our vision is to be pretty tough on fees.”

Ullico and the three other ousted money managers charged higher fees based on an expectation their investment strategies would exceed market returns.

The money invested with Ullico will be transferred to Garcia Hamilton & Associates, a Texas firm that plans to invest it in a less-complicated, fixed-income fund. That company will charge fees significantly lower than Ullico’s on the returns it produces — from .78 cents on the dollar to .09 cents.

Ullico officials didn’t respond to messages seeking comment.

Fees also will be cut as a result of the board’s decision to withdraw its investments in funds managed by the other three money managers: Ariel Investments, Herndon Capital Management and Wellington Management. In all, the board paid nearly $2.3 million in fees on all four deals last year, including $433,774 to Ullico.

Those fees are expected to plummet to $218,000 with their transfer into stock and bond index funds designed to track the financial markets.

Ullico, which also operates a life insurance company, has long been a player in Illinois Democratic politics. Over the past 15 years, it’s made $406,501 in campaign contributions, including $125,000 to the Democratic Party of Illinois, $22,500 to Illinois Democratic County Chairmen’s Association, $20,000 to former Gov. Pat Quinn and $11,000 to House Speaker Michael J. Madigan, D-Chicago, the state Democratic Party chairman.

Pension board members typically have had political ties of their own. The Board of Investment — which oversees $15.3 billion in investments for the retirements of state employees, legislators and judges — is no exception.

The six votes to fire Ullico came from:

• Rauner appointee Levine, co-founder of Chicago Asset Funding, a financial services firm, and chairman of the New Trier Township Republican Organization. He launched a campaign for an Illinois senate seat in 2011 but dropped out of the race. He’s made $221,250 in state political contributions in the past five years, including $25,000 to Rauner; $50,500 to Sen. Bill Brady, R-Bloomington, a former Republican nominee for governor; and $5,000 to Mayor Rahm Emanuel.

Marc Levine, new chairman of the Illinois State Board of Investment.   State of Illinois file photo

Marc Levine, new chairman of the Illinois State Board of Investment

• Rauner appointee Mark Cozzi, a founder of the Lincoln Park Capital investment firm and the board’s new vice chairman. Cozzi was on Emanuel’s transition team in 2011 before being appointed by the mayor to the Chicago Housing Authority board. He also was on Rauner’s transition team last fall. Cozzi has made $25,700 in state political contributions — $20,000 of that to Emanuel-controlled campaign funds.

• Rauner appointee Ezequiel “Zeke” Flores, another member of Rauner’s transition team, who is chief executive officer of an airport food and concessions business called Flying Retail LLC that has lucrative deals at Chicago’s airports. Since 2010, Flores and his companies have made $17,214 in campaign contributions, $11,000 of that to funds controlled by Ald. Edward M. Burke (14th).

• Rauner appointee Sheri Greco Reiches, a principal at the investment firm Rappaport Reiches. Her business partner, David Rappaport, is a Rauner appointee to the board of the Secure Choice Savings Plan, a state-run retirement fund for small-business employees.

• Illinois Appellate Court Justice Mary Seminara-Schostok, a Republican who’s on the board because of her role as chairman of the Judges’ Retirement System of Illinois.

• Republican Leslie Munger, appointed state comptroller by Rauner in January after Judy Baar Topinka died in office.

The three votes to keep Ullico came from:

• Quinn appointee Steven M. Powell, secretary-treasurer of Local 881 of the United Food and Commercial Workers who is also an international vice president of the union. He formerly was a Mundelein village trustee and member of the Democratic state central committee.

• State Sen. James F. Clayborne, D-Belleville, who’s on the board in his role as chairman of the General Assembly Retirement System.

• Frerichs, who narrowly defeated Republican Tom Cross last November in the treasurer’s race.

The board’s vote to fire Herndon was exactly the same as for Ullico. It voted 8-1 to terminate the other two deals, with Clayborne casting the lone “no” votes.

Though Ariel Investments had $23.7 million pulled from its management, it still manages two other investments for ISBI that total $258 million. Ariel President Mellody Hobson says those investments have produced solid returns.

Ariel has given money to numerous politicians, the overwhelming majority of them Democrats, including $1,000 to Clayborne in 2011.

Hobson says she doesn’t think politics played a role in the board’s decisions.

“The last thing I would see our governor doing is making our pension funds political,” says Hobson. “He understands at his core what pension fund investing is about.”

GTCR — the financial firm Rauner formerly headed — still manages $24.6 million for ISBI and was paid $165,935 in fees last year. Since it began investing State Board of Investment money in 1984, GTCR’s rate of return has been 17.4 percent.