An investigation into the contacts between the former director of the Pension Benefit Guaranty Corp. and Goldman Sachs, J.P. Morgan, and BlackRock may pose new questions about a big shift in PBGC investing policy from Treasury bonds to stocks, real estate, and private equity.

On Thursday the PBGC’s Office of the Inspector General began circulating a draft report detailing ex-director Charles E.F. Millard’s actions in connection with hiring the three investment firms as strategic partners to manage real estate and private-equity investments for the PBGC, the nation’s insurer of defined-benefit pensions. Total fees for the three firms could exceed $100 million over a 10-year period, according to the report.

The report outlines findings unearthed in an audit of the agency’s new investment policies by its inspector general, Rebecca Anne Batts. Among the findings: Millard, who served in the PBGC’s top slot for two years beginning in December 2007, had inappropriate contacts with bidders for investment work, especially during the “blackout period” when the insurer was assessing their applications. In essence, the report says Millard was dealing closely with certain vendors at the same time he was responsible for assuring a competitive bidding process.

In an April 28 letter to the inspector general, Millard denied the charges, asserting that “my conduct was appropriate as a policy matter, based firmly on agency regulation and advice of agency counsel and undertaken in good faith by me to advance the goals of the PBGC.”

The allegations bring to light Millard’s implementation of a controversial PBGC investment policy that stressed growth via a vast increase in equities investment and new investment in private equity and real estate. Previously, the insurer had pursued an approach that sought to match its investments (largely through bonds) with its liabilities.

Under the policy, which was announced in February 2008, the PBGC planned to “allocate 45 percent of its assets to a diversified set of fixed-income investments, 45 percent to diversified equity investments and 10 percent to alternative investment classes,” according to a press release issued at the time. The PBGC then had about $55 billion to invest under the new investment policy.

In terms of the alternative investments under the new policy, contracts awarded in October 2008 called for the investment of almost $2.5 billion in real estate and private equity, according to the inspector general’s report.

Under the agency’s previous policy, it invested between 75% and 85% in fixed income and set an equity-investment target of 15% to 25%. The actual level of equity investments at the end of the 2007 fiscal year, however, was 28%.

In an interview in February 2008, Millard told CFO.com that the alternative investments would include some in private-equity firms and in real estate partnerships that invest in such things as office properties and warehouses. He said the pension insurer has no asset class in its new policy targeted to collateralized debt obligations or other securitized vehicles.

Millard disputed the notion that the agency was pursuing a more aggressive investment policy, adding that the terms “aggressive” and “conservative” don’t apply. Instead, the PBGC is moving from an “undiversified” portfolio to a much more diversified one that would mitigate risks, he added, noting that the agency was projecting that the new investment policy would have a lower standard deviation than the old.

Millard also noted that, according to a November 2007 PBGC estimate, had it invested 60% of the portfolio in bonds and 40% in stock, the agency would have $7 billion more — an amount that would have halved its then-current deficit. In addition, he said, the new policy would supply the PBGC “with a 57 percent likelihood of full funding within ten years, compared to 19 percent under the previous policy.”

At the time, many critics thought the new policy was overly risky. For instance, in an e-mail sent to CFO.com, Zvi Bodie, a Boston University finance professor and a major advocate for asset-liability matching by the PBGC, cited “the negative reactions of many of us in the community of finance professionals to this policy reversal on the part of the PBGC.”

By its action, “the PBGC is violating a fundamental principle of risk management,” Bodie wrote then. “Stated simply it is this: A company that insures against hurricane damage should not invest its reserves in beachfront properties.” Since the insurer’s pension liabilities are backed by corporate pension assets and corporate shares, the PBGC is exposed to the risk of a market downturn even if it doesn’t invest in a share of stock, according to the professor, who reasoned that agency should invest in enough bonds and equity swaps so its assets should be matched to its liabilities.

In its move, the PBGC was going against the current corporate tide, Millard acknowledged then, noting that “a lot of corporate CFOs, plan sponsors, and treasurers prefer asst-liability matching because they want to dampen balance sheet volatility.”

The PBGC, a corporation wholly owned by the federal government, was set up under the Employee Retirement Income Security Act of 1974 (ERISA). The agency’s bylaws require its three-member board, which consists of the U.S. Secretaries of Labor, Commerce, and Treasury, to review the PBGC’s investment policy every two years and approve it every four years.

In February 2008, PBGC executives presented the new investment policy to the board, which unanimously approved it. The policy “is less conservative than the prior policy, and involves transferring billions of dollars from fixed income treasury securities to marketable equities, real estate and private equity,” according to the inspector general’s report, which noted that the IG’s conclusions about the implementation of the policy will be presented in another audit report “in the near future.”