Last week, U.S. Senate candidate Alexi Giannoulias rolled out an ad touting his stewardship of Illinois' Bright Start college savings program.  Yesterday, fellow Senate contender David Hoffman responded by releasing a spot featuring a Bright Start participant from Oak Park who suffered a financial loss in 2008 thanks to the mismanagement of a particular fund.  Watch it:

While the Hoffman campaign has put a very limited amount of resources behind the ad, it's getting a lot of free media attention today, including a full airing on WFLD's Good Day Chicago this morning.

As we've noted before, the controversy over Bright Start stems from the performance of a particular mutual fund (Core Bond) available to Illinois investors and managed by Oppenheimer, whom Giannoulias hired to handle the program.  While almost every other fund of this type declined in value in 2008 (usually in the range of 7% to 8%), Core Bond took a much larger hit (36%), amounting to about $150 million in losses. 

Hoffman and various others now blame the outsized drop in value on Oppenheimer's investment in "risky mortgage-backed securities."  They allege that Giannoulias should have seen the warning signs far in advance and protected those Illinois parents who had money invested in this funds.  What often gets overlooked in the discussion, however, is the degree of leverage being employed by the Oppenheimer managers. 

As Morningstar noted in an April 2009 article, this element of the investment strategy -- which ultimately compounded the losses -- was left off the balance sheets made available to investors:

[I]nvestors had little way of knowing that the funds were piling high extra layers of market exposure. Because most of this additional market exposure came from off-balance-sheet derivatives, the funds' portfolios didn't look highly leveraged. In a conventional accounting sense of leverage -- borrowing money against net assets and investing it -- they might have looked slightly leveraged. But in a economic sense, and as a mutual funds go, they were heavily leveraged.

More recently, an AP "fact-check" article published over the weekend cited various financial experts' opinion that it would have been difficult to predict the type of loss Core Bond would ultimately suffer:

The experts say that if Core Plus had lost money while other investments were healthy, it would have been logical for the state to act more quickly. But in 2008, everything was going wrong financially. It was almost impossible, they say, to sort out the overall problems from mismanagement in particular funds.

 In other news, the Daily Herald endorsed Hoffman today:

We recognize that Hoffman, 42, has an uphill battle against the better known and funded one-term state Treasurer Alexi Giannoulias. And we also acknowledge that Giannoulias, 33, makes a strong case for the nomination. His banking and financial background, especially, are important attributes when dealing with questions concerning our economy and how best to turn it around.

However, Hoffman has a unique background with even more experience dealing with federal issues. He was a foreign policy legislative assistant to the former chairman of the Senate Intelligence Committee in the early 1990s. He also was a law clerk to Chief Justice William Rehnquist.

We like that Hoffman refers to himself as a pro-growth Democrat who understands that the ballooning deficit needs to be reduced by rooting out wasteful and inefficient spending and prioritizing economic growth.

Registered to vote and want to cast your ballot now?  Early voting is available until the 28th of January.  Look up your local election authority here.

Full Disclosure: The SEIU Illinois State Council, which sponsors this website, has endorsed Alexi Giannoulias in the Democratic primary for U.S. Senate.