Minneapolis Employees Retirement Fund on July 12 terminated Advanced Investment Management for violation of investment guidelines, said Judith M. Johnson, the plan's chief investment officer and executive director. AIM ran $130 million for the $1.1 billion pension plan in an S&P 500 enhanced index strategy. PIMCO, which the fund hired as transition manager, deleveraged the account, leaving it with $76 million in assets.
According to the fund's investment guidelines, the account had to have at least 85% exposure to the S&P 500 index and a maximum of 15% leverage, Ms Johnson said. After the account experienced unusually high gains and losses from October through January, fund officials asked consultant Ennis Knupp to investigate. Ennis Knupp and PIMCO found AIM had violated contract guidelines in December regarding both leverage - 400% that month - and index exposure - which was 82%, Ms. Johnson said. In addition, she said there was evidence that AIM was making midmonth directional bets and incurring market losses, also forbidden under the guidelines. Total losses due to contract violations were $27 million, she said.
"We believe this is a very serious breach of contract and have already referred the matter to outside legal counsel," she said in a statement, adding that MERF likely will file a complaint with the SEC "for further investigation and, hopefully, enforcement action against the firm."
San Bernardino County terminated AIM for similar reasons in mid-July.
J. Thomas Allen, AIM's CIO said: "Results of the account were not up to our expectations under extreme market conditions, but they were achieved within our permitted discretion. ... AIM contacted MERF to discuss positions and performance and reviewed our holdings with them and MERF's consultant. Nothing was concealed from them."