San Diego County Pension Weighs Major Governance Changes After Expert Recommendations

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San Diego City Employees Retirement System is on the cusp of firing its controversial outsourced chief investment officer and bringing more investment management in-house. But that’s not the only change that could be coming for the fund.

The fund’s former CIO spoke to the board of trustees on Thursday and suggested major changes to its governance model. The trustees were extremely receptive to the suggested changes.

More details from the San Diego Union-Tribune:

David Wescoe, who stabilized the San Diego City Employees Retirement System after an underfunding crisis nearly bankrupted the city a decade ago, said the county should have a single person report to the board — not one for administration and one for investments, as it has now.

“I’m strongly for the linear model,” Wescoe told pension trustees during a two-day retreat that began Thursday. “The board should have one direct report.”

Under its current governance model, the San Diego County Employees Retirement Association has two people who report directly to the board: CEO Brian White and outsourced portfolio strategist Lee Partridge.

[…]

Wescoe also said the fund would be much better served by recruiting and hiring its own lawyer as well, rather than an outside contractor.

“It’s an absolute necessity for a very well functioning management team,” Wescoe said. “They can prevent little issues from becoming big issues.”

[…]

After Wescoe’s presentation, at least two trustees said they were ready to begin implementing his suggestions.

“I would love to see the board adopt the recommendations you put forward,” said Supervisor Dianne Jacob, who represents the county Board of Supervisors on the retirement panel. “We have an opportunity to bring the same kind of changes here for SDCERA, and I think we should take advantage of it.”

County Treasurer Dan McAllister, who also serves on the board as part of his elected duties, said he hopes trustees can schedule a debate on Wescoe’s recommendations as soon as next month.

“We owe it to ourselves to discuss those issues,” McAllister said.

Wescoe also addressed the potential hiring of a new CIO to internally manage investments. From the UT:

Wescoe, who oversaw the city pension fund from 2006 to 2009, said he knew many local investment professionals who would relish the chance to manage the $10 billion county portfolio for around $200,000 a year.

“It’s the professional opportunity of a lifetime,” he said.

Partridge and his company, Salient Partners of Houston, Texas, are paid more than $10 million a year.

His predecessor, an in-house chief investment officer, was paid $209,000 a year. The position was outsourced to allow for higher pay. Despite that, Salient’s investment returns have not kept pace with those of peer pension systems.

The pension fund is also missing its internal benchmark for earnings. For the 12 months ending Oct. 31, the most recent available, the agency’s benchmark was 9.1 percent and the fund earned 8.22 percent, according to a preliminary report by Salient.

Last month, the board of trustees informally voted to fire their outsourced CIO, Lee Partridge and his firm Salient Partners.

The vote was not official.

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