The San Diego County Employees Retirement Association (SDCERA) has made headlines across the country for having maybe the highest risk tolerance of any pension fund in the country.
Lee Partridge, the fund’s outsourced Chief Investment Officer, is permitted to use up to 500 percent leverage on portions of the portfolio.
But the fund will vote Thursday on whether to fire Partridge after retirees have said they fear for their pensions under the risky strategy. According to insiders who spoke to Chief Investment Officer Magazine, the vote is too close to call:
The nine trustees of the San Diego County Employees Retirement Association (SDCERA) are set to vote on Thursday whether to terminate its outsourcing contract with Lee Partridge’s Salient Partners—a deal they passed eight to one in June.
The outcome is too close to call, according to several sources familiar with the matter. Three trustees have consistently backed and defended the arrangement, including David Myers and David Moore, while three others adamantly oppose it. A September 18 motion by Dianne Jacob initiated the vote, seconded by new member Samantha Begovich. In June, Dan McAllister alone came out against the contract. The positions of the final three trustees remain unclear.
In the event of a majority vote to dismiss Salient, the board is expected to nominate consultant Wurts & Associates as interim portfolio manager. A partner from recruiting firm Korn/Ferry is also slated to present about its recent search for an internal CIO for the California Public Employees’ Retirement System. According to the agenda, the board may then vote on whether to solicit proposals from recruitment firms to undertake their own search.
One trustee who will likely vote to fire the CIO, Samantha Begovich, said this at a board meeting earlier this month:
“It is well documented that we’re paying exorbitant, outlier-type fees with no incentives except to grow the fund…a contract with no ties to performance is something that I cannot support. And so I will be voting ‘no’ on that when the time comes.”
Another trustee who supports the current CIO said he was “flabbergasted” that the board is considering firing Partridge. From Chief Investment Officer:
“All of our board members were fully aware of the investment portfolio structure and how it would perform in an equity bull market,” wrote Trustee Myers, a Salient supporter, in response to the conflict. Likewise, “all understood, or at least I thought they understood, that it is the long term sustainability and performance of the retirement fund is what matters.”
Myers continued to say he was “flabbergasted” at the proposal to fire Salient and exit its investment strategy “without thinking through all of the implications and any form of a backup plan or approach. There are many terms to describe such proposals, but I would not describe them as ‘measured,’ ‘well thought out’ or even ‘analytical.’”
The vote will be held on Thursday, October 2.