Ted Ballantine | Pension360

San Diego Pension Trustees React To Retainment of Controversial CIO

The San Diego County Employees Retirement System (SDCERS) voted 5-4 last week to retain its controversial CIO, Lee Partridge.

The vote was close, and nearly every trustee had something to say about the decision. From Bloomberg:

“All the sudden we found out we have $22 billion in exposure,” [trustee Dianne] Jacob said by telephone prior to the vote. “That should have never happened. The process is flawed. The hiring of Partridge in the beginning was flawed. Let’s get back to basics.”

[…]

“This is an exorbitant amount of taxpayer dollars being spent and is unprecedented in any other county in California,” [County Treasurer and trustee] McAllister said by e-mail before the vote. “I have strongly opposed the adoption of an outsourced government structure.”

McAllister went on, according to the San Diego Union-Tribune:

“The CEO, Brian White, has put SDCERA in the spotlight for all the wrong reasons,” said County Treasurer Dan McAllister, who serves on the pension board as part of his elected duties. “This is not the behavior we should expect from the CEO of one of the largest public pensions in the state.”

Those trustees were echoing the sentiment of city employees, many of whom had shown up to previous board meetings or written the trustees to express their insecurity with the pension fund’s investment strategy. From the San Diego Union-Tribune:

“You have a responsibility to represent hard-working San Diego County employees,” county employee Tracey Carter, a member of Service Employees International Union 221, told the board prior to the vote. “We have done our due diligence. We have separated headlines from facts. It is time to change direction with the management of the fund.”

But the majority of trustees voted not to fire Partridge. From the San Diego Union-Tribune:

“For those who continue the fear-mongering, shame on you,” said [trustee and board vice-chairman David] Myers.

More of Myers’ reaction from Bloomberg:

“Going forward with the contract is in the best interest of this organization and its members — it saves money,” David Myers, the board’s vice chairman, said at a Sept. 18 meeting. “The dysfunctionality of what is going on right now is, in my opinion, a breach of our responsibility to this organization.”

Salient Partners LP, the firm that employs Partridge, released this statement to Bloomberg:

“ [We] delivered $4.4 billion to SDCERA plan members at a lower cost and with less risk than 80 percent of similarly sized pension plans,” said Chris Moon Ashraf, a spokeswoman for the company at Jennifer Connelly Public Relations. “The average SDCERA plan beneficiary realized more than $111,000 in gains under Mr. Partridge’s stewardship for a total fee over five years of $414.”

The fund’s investment strategy was controversial because the CIO was allowed to use up to 500 percent leverage on certain parts of its portfolio, without seeking approval from the board or the fund’s director.

SDCERS returned just over 13 percent in 2014.

Florida Pension Continues Search For Senior Fixed Income Manager

The Florida State Board of Administration (SBA), the entity that manages investments for the Florida Retirement Systems, has re-posted a job listing looking for a senior portfolio manager to manage fixed income investments.

The SBA appears to have increased the top range of the position’s potential salary, from $140,000 to $180,000. The job pays, at minimum, $120,000. The listing reads:

Responsibilities

50%. Research and analysis of economic and market information to support the Internal Fixed Income investment process. Shape the interest rate view and contribute relative value ideas. This will involve, but not be limited to; analyzing written publications and conversing with economists and strategist regarding individual country or global economic conditions and prospects, researching, understanding and explaining the implications of economic projections on the current structure of internal portfolios, researching, analyzing and presenting relative value opportunities for internal portfolios and constructing, explaining and presenting trade ideas to capture relative value opportunities.

25% Supervision of and backup for Portfolio Manager

10%. Preparation for and participation in weekly group strategy meeting.

15%. Assist the Sr. Investment Officer-Fixed Income with special projects and perform other duties as delegated.

Qualifications

(Re-advertisement – Previous applicants will be considered and need not re-apply)

A bachelor’s degree from an accredited college or university in computer science, MIS, accounting, finance, business, communication, public information, marketing, economics, mathematicis, statistics, or management and five years of related professional experience, three years of which must have been at a supervisory level or higher;

Or, a master’s degree or MBA from an accredited college or university and three years of related professional experience, two years of which must have been at a supervisory level or higher.

Professional related experience will substitute for the required college education.

Preference will be given to candidates with a Chartered Financial Analyst (CFA) designation.

The application period closes on October 10.

View the listing by clicking here.

Photo by Nathan Stephens via Flickr CC License

San Diego Fund Votes 5-4 To Retain Controversial CIO

After a “tense” five-hour deliberation, the Board of the San Diego County Employees Retirement Association (SDCERA) voted 5-4 to retain its outsourced chief investment officer.

The pension fund and its CIO, Lee Partridge, have made headlines in recent months due to their high tolerance for risk and extensive use of leverage.

From Chief Investment Officer Magazine:

The board of the San Diego County Employees Retirement Association (SDCERA) declined to terminate its contract with outsourced-CIO Salient Partners at a meeting on Thursday.

As predicted by those close to the $10 billion fund, the vote came down to the wire. After nearly five hours of discussion, a motion brought by trustee Dianne Jacobs to fire Salient was blocked by five trustees, including Chairman Skip Murphy, and backed by four.

Several stakeholders presented formal recommendations about the action before the board’s vote. The majority of these representatives urged the fiduciaries not to reverse their course—a risk-parity oriented portfolio overseen and invested by Salient.

“We believe your board is at a serious juncture,” said Susan Mallett, president of the county’s retired employee association. “You are suddenly and unexpectedly considering a reversal from an investment strategy you had agreed on after years of considered discussion. As a representative of thousands of members who absolutely depend on their pensions, I have received as many worried letters about leverage as I have about the actions of this board.”

Though the majority of trustees opted not to vote for a firing, the minority was very vocal during the meeting. From the San Diego Union-Tribune:

“The CEO, Brian White, has put SDCERA in the spotlight for all the wrong reasons,” said County Treasurer Dan McAllister, who serves on the pension board as part of his elected duties. “This is not the behavior we should expect from the CEO of one of the largest public pensions in the state.”

Dianne Jacob, chairwoman of the Board of Supervisors, made a motion to terminate the Salient contract early in the meeting.

“It’s time to steer things back to the basics of simplicity and common sense not because we have received criticism but because it’s the right thing to do for retirees and taxpayers,” Jacob said.

Jacob received the support of only three of her colleagues on the nine-member SDCERA board — Samantha Begovich, Mark Oemcke and McAllister. Five votes were required to terminate the contract.

Begovich, a prosecutor who recently joined the board, used the strongest language against the consulting firm, saying it has taken advantage of the pension system and has a stranglehold on more than $10 billion of public funds. She said supporters of the firm for years have presented one-sided information about the wisdom and soundness of its investment approach. She called the firm poisonous for San Diego County.

The Board did express the desire to gradually unwind its contract with the CIO and directed its staff to come up with some options for taking control out of the hands of Lee Partridge.

Those options will likely be presented at next month’s board meeting.

Photo by Keith Ivey via Flickr CC License

Video: Funding Shortfalls and the Politics of Pensions

Here’s a short segment that dives into public pensions with Adrian Moore, vice president of policy at the Reason Foundation.

The video touches on assumed rates of return, New Jersey’s funding shortfall and the politics of pension payments.

The Reason Foundation is a libertarian-leaning think tank based in California.

Montreal Unions Will Fight “Unjust” Pension Reform Bill

A union coalition representing 65,000 workers has announced workers may strike for 24 hours in protest of the proposed pension reforms contained in Bill 3. Additionally, the union spokesman said a legal challenge could be in the works.

Bill 3 would increase pension contributions and eliminate COLAs for many workers.

New Mexico Pension Reaches Settlement With Ex-Chairman Marred By Scandal

Bruce Malott, the ex-chairman of the $11 billion New Mexico Educational Retirement Board, is currently the defendant in five separate lawsuits stemming his handling of pension investments, which were allegedly marred by conflicts of interest.

Mallot resigned from the pension fund as a result of the controversy. But he claimed that the Retirement Board should pay his attorney fees accrued during those lawsuits. The Board initially refused, but Mallot sued the board over the fees, and today the Board has agreed to pay $125,000 worth of his attorney costs.

Reported by the Albuquerque Journal:

The Educational Retirement Board has paid its former chairman, Bruce Malott, $125,000 to settle a civil lawsuit he filed to recover money for legal representation in lawsuits arising from a state investment scandal.

Malott filed the lawsuit two years ago when the board refused to pay for his personal attorney fees based on an attorney general’s opinion and because he was also represented by lawyers hired by the state.

“The attorney general’s opinion stated clearly that I should not be reimbursed for my legal fees if I had done anything wrong, so this payment only demonstrates what I have said all along – that I have acted with integrity throughout my tenure at the ERB,” Malott said.

ERB Executive Director Jan Goodwin said in a statement, “Consistent with a ruling issued by U.S. District Court Judge Martha Vázquez earlier this year, the agency determined that a settlement was in the best interest of ERB members and beneficiaries. Continued litigation held the risk of escalating costs and an uncertain outcome.

“The settlement allows ERB to focus its attention on its mission of serving its members,” she said.

The ERB was represented by the Attorney General’s Office in the lawsuit.

More details on Malott’s conflicts of interest during his tenure at the pension fund, from the Albuquerque Journal:

Malott was named as a defendant in five separate civil lawsuits that claimed investments by the State Investment Council and the Educational Retirement Board were steered to investment firms by placement agents with close ties to then-Gov. Bill Richardson’s administration. The main placement agent, Marc Correra, shared in more than $22 million in fees for steering state investments from the SIC and the ERB to firms that paid him.

Correra’s father, Anthony Correra, was part of Richardson’s inner circle, and raised money for his campaigns for governor and president.

While serving on the ERB, Malott received a $340,000 loan from the elder Correra through a trust.

Malott resigned as chairman of the ERB following an interview with the Journal about the loan, which had not been disclosed to the ERB, the public or to Richardson, who had appointed Malott to the ERB.

The New Mexico Educational Retirement Board is the pension fund for 90,000 of the state’s teachers. It oversees $11 billion of assets.

Europe Launches Cross-Border Pension Plan For Scientists, Researchers

European scientists and researchers often move between countries for their work. That poses logistical problems for their pension plans, but the European Union is moving to end those troubles.

The European Commission announced this week a new, cross-border pension system for scientists and researchers who are frequently on the move. From Science Direct:

Under the new system, which is called Retirement Savings Vehicle for European Research Institutions (RESAVER) and will be launched next year, employees will stay affiliated to a single pension plan, keeping their benefits as they move between countries and institutions. “RESAVER’s size will also ensure very competitive costs,” says Théodore Economou, CEO of the pension fund at CERN, Europe’s particle physics laboratory near Geneva, Switzerland.

The fund will not substitute state-run pension systems (also known as first pillar pensions), but will provide supplementary benefits financed through employer contributions and private pension plans for individuals (so-called second and third pillar pensions).

But for now, the plan is limited to the handful of institutions that have signed up, including the Vienna University of Technology; the Elettra Synchrotron in Trieste, Italy; and the Association of Universities in the Netherlands. (CERN and the University of Cambridge were part of the task force that helped set up the system, but have not joined RESAVER.)

But where old logistical hurdles are removed, new ones come in their place. From Science Direct:

“RESAVER is not possible or attractive in a number of countries” including France, Germany, and the United Kingdom,” says Katrien Maes, chief policy officer at the League of European Research Universities (LERU), which supports the fund’s idea and also took part in the task force. For example, “Public sector employees [in France] are unable to opt out of their mandatory pension plan which already provides a relatively high level of benefit,” according to a 2010 feasibility study ordered by the European Commission.

The European Commission is awarding a 4-year, €4 million contract to kick-start the system.

Photo by go.usa.gov/dj0

Montreal Fires Six Firefighters, Suspends Dozens After Pension Protests

Montreal city hall pension protest — The scene in Montreal’s city hall during the pension protests.

Six firefighters have been fired and 46 have been suspended in Montreal after those employee’s participated in last month’s raucous protests against pension cuts. From the Montreal Gazette:

This was the fallout announced Thursday by the city of Montreal following an investigation by its human resources and comptroller’s departments into the Aug. 18 ransacking of city hall. More than 100 municipal workers, most of them firefighters, stormed in, tossing reams of paper throughout the building, chasing the mayor and councillors out of council chambers and up to offices, and flinging water and water glasses from elevated viewing galleries down toward councillors.

[…]

Calling the acts disgraceful, Montreal executive committee chair Pierre Desrochers said video and witness testimony had implicated 63 individuals, and that more individuals were being investigated. Implicated individuals were invited to give their version, he said. Most did not.

The level of punishment was based on the gravity of the offences, which ranged from raucous protesting to vandalism and outright intimidation, Desrochers said. Asked what constituted a firing offence, he referred to workers who ran up to Mayor Denis Coderre’s office and broke windows trying to get in.

“This direct attack on democracy included acts of intimidation of a gravity without precedent in a free and democratic society,” Desrochers said. “Never will our administration cede to intimidation, and never will it accept that citizens be taken hostage by tactics that go too far.”

One union leader was angry with the “brutal” punishments. From the Montreal Gazette:

The head of Montreal’s firefighters’ union, Ronald Martin, promised to fight the firings and suspensions. He said he has not been fired although he heard the rumours of his firing in the wind. “Maybe there is a bailiff’s letter waiting for me at home. As far as I know I have not been fired,” he said during an afternoon news conference.

Martin called the city’s action brutal and disappointing, and a political act that is an attempt at “union busting.”

“These are dark days for labour relations,” Martin said.

The union leader appealed to members to stay calm in the face of firings, which he called the city’s provocation to the “family of firefighters.”

“They want to make us angry, don’t fall into the trap,” Martin said.

All the workers will be able to appeal their suspensions and firings.

Report: New York Common Fund Picks Above Average Hedge Fund Managers

Some observers have openly questioned the manager selection habits of pension funds. But a recent analysis shows that at least one fund, the New York Common Retirement Fund, picks “above average” hedge fund managers. From Pensions & Investments:

An analysis of public holdings shows that equity hedge fund managers in the New York State Common Retirement Fund‘s absolute-return strategy exhibit “above average” skill as stock pickers, but are outside the top 25th percentile of the fund universe as a whole.

Symmetric Information Technologies analyzes 13F filings of hedge funds and calculates security selection skill based on funds’ long positions, and their relative performance to overall sector returns. The most recent analysis notes the “accomplishment is still impressive given the restrictions pension funds operate under and shows they are able to pick managers that produced for them better than average skill compared to what is available in the HF universe. This is no easy task.”

Symmetric says three New York State Common Retirement Fund managers – HighFields Capital, ValueAct Capital and Viking Global Advisors – ranked in the top 25th percentile in terms of stock selection.

The Common Fund makes investments for the New York State and Local Retirement System (NYSLRS) as well as other major systems.

The Common fund allocated 3.2% of its assets or $5.6 billion, toward hedge funds.

The Case For Long-Termism in Pension Investments

Pension funds, more so than other investors, operate on a particularly long time horizon.

But that doesn’t mean funds can’t succumb to short-term thinking.

Keith Ambachtsheer, Director Emeritus of the International Centre for Pension Management at the University of Toronto, makes the case for more long-term thinking at pension funds in a recent paper published in the Rotman International Journal of Pension Management.

He lays the groundwork of short-term thinking at pension funds by presenting this statistic:

My 2011 survey of 37 major pension funds found that only 8 (22%) based performance-related compensation on measures over four years or more.

In other words, pension funds aren’t rewarding long-term thinking. But how can that be changed? From the paper:

A good start is to insist that the representatives of asset owners become true fiduciaries, legally required to act in the sole best interest of the people (e.g., shareholders, pension beneficiaries) to whom they owe a fiduciary duty….the resulting message for the governing boards of pension and other long-horizon investment organizations (e.g., endowments) is that they must stretch out the time horizon in which they frame their duties, as well as recognizing the interconnected impact of their decisions on multiple constituents to whom they owe loyalty (e.g., not just current pension beneficiaries but also future ones).

Increasingly, fiduciary behavior and decisions will be judged not by a cookie-cutter off-the-shelf “prudent person” standard by a much broader “reasonable expectations” standard.

A logical implication of these developments is that the individual and collective actions of the world’s leading pension funds are our best hope to transform investing into more functional, wealth-creating processes.

It will take work, but a shift to long-termism will be worth it, according to the paper:

Institutional investors around the globe, led by the pension fund sector, are well placed to play a “lead wagon” fiduciary role as we set out to address these challenges. Indeed, the emerging view is that pension sector leaders have a legal obligation to look beyond tomorrow, and to focus the capital at their disposal on the long term.

Will the effort be worth it? Logic and history tell us that the answer is “yes.” Qualitatively, long-termism naturally fosters good citizenship; quantitatively, a 2011 study that calculates the combined impact of plugging the upstream and downstream “leakages” in conventional investment decision making with a short-term focus found that the resulting shift to long-termism could be worth as much as 150 basis points (1.5%) per annum in increased investment returns (Ambachtsheer, Fuller, and Hindocha 2013).

Read the entire paper, titled The Case for Long-Termism, here [subscription required].

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712