LOS ANGELES - WR Lazard escaped a possibly serious blow when trustees for the $6.2 billion Los Angeles City Employees' Retirement System decided against their consultant's recommendation to terminate the money manager.
The city fund is WR Lazard's second largest pension fund client. A decision to drop the firm could have raised further questions about WR Lazard's operational health and further weakened institutional investor confidence in the minority-owned firm.
WR Lazard is managing $178 million for the city employees' fund in an intermediate government/corporate index fund.
But at least one trustee is unhappy about the board decision to stay with WR Lazard despite personnel changes, dwindling assets under management and a lawsuit against the firm (Pensions & Investments, June 23).
"I don't see what we get for waiting. This ship (WR Lazard) is sinking . . . Why are we leaving the money there?" asked board member Beverly B. Thomas.
Another board member, Shelley I. Smith, expressed serious concerns about WR Lazard, although she voted with the majority not to terminate the firm.
But Marianne Camille Spraggins, WR Lazard's president and chief executive officer, said the board's vote was "most definitely" a welcomed vote of confidence for her firm. "It's one I appreciate tremendously since our performance has been consistent, and I think exemplary," she said.
Sarah E. Clark, LACERS' consultant with Asset Strategy Consulting, Los Angeles, sent a memo to the board and attended a board meeting advising the trustees to terminate WR Lazard.
In the memo, Ms. Clark stated, "Because of the considerable number of organizational changes that have occurred with WR Lazard, Asset Strategy is concerned about the firm's ability to function effectively as an investment manager in the near future.
"The death of the head of the firm in 1994, coupled with changes in the management structure of the firm and the specter of two significant lawsuits, has introduced significant uncertainties in the firm's future and raised substantial questions regarding the firm's financial health," the memo stated.
Making her view clear, Ms. Clark wrote: "The purpose of this memo is to recommend that LACERS terminate WR Lazard."
Going before the board, Ms. Clark restated her concerns.
Los Angeles City Employees' is the second public pension fund client that has given at least temporary backing to WR Lazard.
The $45 billion New York City Employees' Retirement System is WR Lazard's largest pension fund client. It is staying with the firm, so far.
But NYCERS asked for and received an audit to assess WR Lazard's financial health. NYCERS officials didn't disclose the results, but Ms. Spraggins said the audit gave WR Lazard a clean bill of health.
New York officials did not return calls for comment.
NYCERS has two portfolios totaling $500 million with WR Lazard, an estimated 45% of the firm's pension assets under management.
Under heavy questioning from Ms. Thomas concerning why WR Lazard was being kept as a manager and worries expressed by Ms. Smith, the LACERS board added three conditions to its resolution to keep WR Lazard:
the New York City fund not pull any of its money from the firm;
William Shultz, the portfolio manager handling Los Angeles' account, continue with the firm; and
the pension fund's staff think it appropriate not to terminate WR Lazard.
If any of the conditions are not met, the staff can terminate WR Lazard without further board action.
It was the pension fund staff that recommended the board keep WR Lazard.
Oscar Peters, the fund's general manager, said LACERS faced very little risk in continuing with WR Lazard for now.
Mr. Peters said the fund "controls the assets" and could take them away immediately, if necessary. He said Mr. Shultz, the portfolio manager, is still there and is doing a good job. And, the system's assets being managed at WR Lazard are high-quality government securities in a low-risk index fund, Mr. Peters added.
In a memo to the board, Mr. Peters said, "Because the LACERS portfolio is a separate account which is being competently managed, staff is recommending that the termination not be executed at this time.
"However, if WR Lazard loses its largest account or if personnel changes occur which impact the LACERS' portfolio, staff agrees that the assets should be removed from their management and transferred" to an index fund with existing manager Lincoln Capital Management, the memo said.
Mr. Peters also said Asset Strategy Consulting had recommended a search for an enhanced core bond index manager be initiated in anticipation of the termination of WR Lazard.
But Ms. Thomas expressed repeated surprise at the staff recommendation. "Why on earth are we waiting for New York to take out money?" she said at one point.
However, Ms. Spraggins said, "We've had fine performance for them (LACERS) as well as all our clients all along."
She said the New York City fund is still a client and will stay with WR Lazard as far as she knows.
"My main concern in running this firm is doing a good job for our clients. I think we have done that all along, and I think we continue to do that," said Ms. Spraggins.
Part of the concern over WR Lazard was connected with the resignation of Phoebe Zaslove in April. WR Lazard announced in February it had bought Ms. Zaslove's equity management firm, but it apparently did not have enough money to close the deal.
Earlier, Larry Jones, an equity portfolio manager with WR Lazard, filed a lawsuit against the firm, alleging it owes him $188,000 in back pay. Mr. Jones is also seeking $2.5 million in punitive damages.