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San Diego Fund Votes 5-4 To Retain Controversial CIO

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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

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