Driving James Hearty’s ouster was state Treasurer Timothy Cahill who is also chairman of the Massachusetts Pension Reserve Investment Management Board, and who sprung the news on Hearty after the pension board’s monthly business meeting this week, according to the Boston Globe.

According to the Globe report, Cahill had been quietly plotting Hearty’s replacement for weeks, and waited to make his move until he had four other board members – enough for a majority – supporting his choice for a replacement fund executive. With Hearty on his way out, Cahill will recommend Steven Weddle, 44, a Milwaukee native. Weddle has been doing corporate finance, venture capital investing, and economic development from postings in Lusaka, Zambia, and Johannesburg, South Africa since 1993.

“I think he was surprised, but not shocked,” Cahill told the Globe of Hearty’s reaction. Cahill said that Hearty had agreed to help in the transition.

In a Globe interview, Cahill praised Hearty’s performance, but said he was frustrated at what he felt was an agency that was too entrenched. He cited, for example, the agency’s refusal to release records about the fund’s investments in venture capital and private equity funds, even though it had been ordered to do so by the Massachusetts secretary of state and attorney general’s offices (See Massachusetts Pension Fund Under Fire ).

Cahill also hit Hearty for the agency’s acting too tentatively in seeking lead plaintiff status in shareholder lawsuits against companies accused of securities wrongdoing. “We need to be a little more progressive. We shouldn’t always be at the back end of some of these issues,” Cahill said (See  A Call to Action ).

Though executive director for just two years, Hearty has been a fixture at the Massachusetts board since 1991, when he served as a high-level finance aide to then governor, William Weld, who appointed him to the board. He served as a board member for a decade before resigning in 2001 to seek the executive director’s job. He also held high-level posts at the former Bank of Boston and Lehman Bros. Hearty’s old job is one of the highest paid in state government; Hearty’s recent salary was $212,000, plus performance bonuses.

Since taking over, Cahill has aggressively pushed the pension fund to invest in hedge funds, as a way to generate positive returns when the stock market is in a decline (See  PRIM OKs Hedge Fund Foray ,  Treasurer Blames Lack of Hedge Funds for County Losses ), and to allocate funds for nontraditional investments that produce economic and social benefits to Massachusetts (See  MA Pension Board to Ponder Economically Targeted Investments ).

Cahill’s nominee has particular experience on the latter issue. For six years Weddle ran the Southern Africa Enterprise Development Fund, a $100-million effort that invested in small and medium-size businesses in the region.

Real Estate Versus Cash

In a separate issue, pension board members also argued this week that it may be illegal for them to accept real estate — the Hynes Convention Center and Boston Common garage — instead of cash, as dictated in the state budget, according to news reports.

Massachusetts lawmakers and Governor Mitt Romney, in closing a $3-billion budget gap, saved $145 million in payments to the pension fund by transferring the convention center and the garage to the board.

Some board members balked at the arrangement at this week’s business meeting, arguing that it’s not their job to manage real estate, and that they may be inviting a lawsuit if they accept the properties.

“There’s a drastic mistake being made here,” board member George McSherry said. “If the Legislature makes bad law, we don’t have to accept it. If we accept this, we violate our fiduciary responsibility that we’re only supposed to accept cash. That’s clear.” Board member David Grain said he’s concerned that they would be “violating the law by not accepting cash.”

Cahill is awaiting an appraisal to determine if the Boston properties are worth the $145 million price tag set by lawmakers during budget deliberations. Cahill plans to ask the Legislature to make up the difference if the appraisal shows the properties are undervalued. “We’re all in agreement that this is not preferable,” Cahill said. “We don’t want to establish precedent by it. But if there’s opportunities here to recoup $145 million, or close to it, then we should explore those possibilities.”

It was not immediately clear what the status of the properties would be if the board votes to reject them. The state budget, however, took effect July 1, and it states that the pension fund now controls the properties.