A series of investment policy changes made by the board of the San Diego County Employees Retirement Association (SDCERA) have saved the fund from losing tens of millions – but also prevented the fund from realizing tens of millions in returns during the third quarter.
Pension funds are particularly long-term investors and no investment policy should be judged based on one quarter’s worth of results, but the outcomes of SDCERA’s allocation changes are fascinating nonetheless.
San Diego County’s pension fund avoided a $100 million loss in the third quarter by reducing its reliance on Treasury bonds although it forfeited about $114.4 million in gains in the past three months because it rolled back its “risk-parity” strategy, the fund’s investment adviser said in a report.
In April, the board of the San Diego County Employees Retirement Association lowered the fund’s fixed-income target to 15 percent from 60 percent by eliminating Treasuries and reducing fixed-income investments and inflation-protected securities. That helped cushion the fund from $100 million in losses in the three months ended Sept. 30, according to the report by Houston-based Salient Partners LP, which manages the $10.1 billion portfolio.
Instead, the fund for 39,000 current and retired county employees lost $4 million.
In September, the board reduced the amount of money that could be invested in futures and derivatives contracts, the so-called risk-parity category the board created in April at the urging of Lee Partridge, Salient’s chief investment officer.
Partridge objected to the September move. With retirees urging board members to reduce exposure to risk, they voted 5-2 to make the change.
Since then, the fund has lost out on about $114.4 million in returns, according to Partridge’s report.
Partridge and Dan Flores, a spokesman for the San Diego County Employees Retirement Association, declined to comment until the board discusses the report on Dec. 18.
SDCERA’s board voted to fire its outsourced CIO, Salient Partners, last month.
Photo by Andreas Poike via Flickr CC License