Some county pension officials in Pennsylvania are keeping a watchful eye on money manager C.S. McKee, Pittsburgh.
McKee manages money for at least 40 county funds in Pennsylvania. In most cases, the firm is sole manager. Collectively, C.S. McKee manages at least $312 million for these funds.
Some county officials are accusing McKee of improper campaign contributions and poor performance. As a result, many pension officers are considering hiring consultants or additional money managers.
"Just because something is legal, doesn't mean it's proper," Butler County Controller John McMillin Jr. said of the campaign contributions from McKee.
In his county, County Commissioner Glenn L. Anderson accepted a $100 contribution from Norman Allan, senior vice president at C.S. McKee, to help Mr. Anderson's 1995 re-election bid, according to county elections bureau.
Mr. McMillin lost in his effort to hire an investment consultant so the $50 million Butler County pension fund could monitor sole manager C.S. McKee. Mr. Anderson opposed the hiring.
Mr. Anderson said he voted against it mostly because of the cost. Overall, he said, he has been satisfied with the manager's performance. In looking at other firms, the commissioner said, their performance was only 4% or 5% compared to McKee's 12%.
The consensus seemed to be that C.S. McKee had done quite well, Mr. McMillin said. But he wanted a consultant to better monitor the performance. The issue of whether to hire a consulting firm probably will be resurrected later in the year, he said.
Other counties that use the firm are going through similar processes. In Northhampton County, Barbara Bigelow, director of fiscal affairs, successfully fought to hire Peirce Park, Wilmington, Del., to help review investment policy and risk tolerance for the county's $153 million fund. McKee is the county's sole manager.
Ms. Bigelow said she has experienced "a crisis in attitude." Her main concern is whether the fund is diversified enough to protect it from market fluctuation.
One of her biggest complaints is with the pension fund's investment policy. (Ms. Bigelow says the policy was written by McKee employees; Mr. Allan says his firm assisted the board in writing it.)
According to Ms. Bigelow, the policy states: "The (investment) objective shall not be tied to the performance of any market indices or any other managers." She added the policy includes the board's desire to have a return three to four percentage points better that the rate of inflation. (The policy sets an objective of 9% compound annual performance). She believes this is not a high enough standard for the fund.
McKee's Mr. Allan said the firm's performance is compared with specific benchmarks that either a fund or C.S. McKee has chosen and that generally are listed in investment policies.
C.S. McKee employees also have written the investment policy for Monroe and Butler counties. Performance is also an issue in these counties.
In Butler, said Mr. McMillan, "Sometimes they show it (performance) for the first six months if they beat it (the index), but sometimes they don't. They don't seem to be consistent."
In another case, Kelly Lewis, county controller for Monroe County, said trustees of the county's $23 million pension fund decided to adopt a new investment plan with C.S. McKee - a policy that tied McKee to a benchmark.
Mr. Lewis says his fund's 15-year equity performance - with C.S. McKee - outperformed the stock market in each of five years, and lagged behind for 10 years.
Mr. Lewis thinks the fund should look into indexing.
McKee's Mr. Allan said Mr. Lewis' criticisms of the firm's performance "were rebuffed by the board."
According to the Monroe County bureau of commissions, elections and legislation, County Commissioner Janet Weidensaul received $300 in campaign contributions from Mr. Allan; Commissioner James E. Cadue got $200. They serve on the pension board.
Campaign contributions do not present a conflict of interests, according Mr. Allan. "If we have them asking us for help with their campaigns, sure, we will do it."
He emphasized the legality of the contributions, which have been made in his name. Pennsylvania law dictates corporations cannot contribute to political campaigns.
In Bellefonte, Pa., Centre County Election Bureau records revealed all but one retirement board member received campaign money from Mr. Allan. Donald Asendorf, county controller, is among those. He said he doesn't see any problems with C.S.McKee, but said one or two commissioners were considering other managers.
Trustees of the $28 million Bradford County Employees' Retirement Fund, Towanda, will decide by Oct. 28 whether to do a search for an investment manager. said Gary L. Wood, chief clerk and secretary to the pension board. The board now uses McKee as sole manager, and is happy with its performance. Mr. Wood said the board is considering other managers because it has been inundated with firms seeking the fund's business.
County election records did not show Norman Allan's name as a campaign contributor there.
The $28 million Armstrong County Employees' Retirement Fund, Kittanning, is considering hiring a consultant to monitor performance and to help the board to decide whether to add another money manager, said Darlene Pike, county controller. McKee is its sole manager. The board had decided to consider other firms once the fund had grown to a certain asset size, said Sondra L. Mervis, county treasurer. Campaign finance reports for the controller's and treasurer's campaigns did not show Mr. Allan as a contributor.