SANTA MONICA, Calif. — Stephen L. Nesbitt, one of the country's best-known investment consulting executives, resigned Feb. 5 from Wilshire Associates Inc., Santa Monica.
He was senior managing director and a principal, and was head of Wilshire's consulting and funds management divisions. He had worked at Wilshire for 23 years.
Mr. Nesbitt quit after he lost the consulting post in a reorganization in which Julia Bonafede was named senior managing director of consulting. Mr. Nesbitt was offered the funds management position but resigned instead, and Michael J. Napoli Jr. was named managing director of that division. Funds management handles manager-of–managers outsourcing; private equity, including venture capital and leveraged buyouts; and hedge fund selection.
Ms. Bonafede had been head of Wilshire's U.S. client service unit; that post will be filled by Mike Olson, a managing director who has been in charge of Wilshire's European operations since 1999. Mr. Napoli ran the firm's hedge fund of funds business; his replacement could not be learned by press time.
The restructuring was done by Chief Executive Officer Dennis Tito and the board of directors.
Wilshire was one of at least seven pension consulting firms that received a letter from the Securities and Exchange Commission in the last month as part of an examination of consultants' practices, compensation and disclosure.
"In light of the SEC's recent focus on consulting firms, the Wilshire board determined that in order to strengthen the ethical walls and eliminate the possible appearance of conflicts of interest, it was necessary to separate the funds management and consulting divisions and have them headed by different executives," Mr. Tito said in an e-mail response to questions from Pensions & Investments.
He said Wilshire "always has maintained very strict internal controls" including making "sound" investment recommendations for clients and making decisions independently of other Wilshire units.
The firm also has been swept up in the mutual fund market-timing scandal, with the SEC reportedly reviewing Wilshire's trading practices. The firm has said it has not violated any laws. "Wilshire was contacted by the SEC as a part of its investigation of the mutual fund industry and cooperated fully," Mr. Tito said.
Mr. Nesbitt confirmed he turned down the new position and resigned, but declined further comment.
Wilshire clients contacted for this story had just learned of Mr. Nesbitt's resignation, and were monitoring the situation.
"I think in the short run it will be a detriment to Wilshire. Steve was pretty much the brains behind the consulting arm. We thought Steve was great. He's a very bright individual. He was a credit to Wilshire," said Frank C. Foy, chief investment officer of the $6.7 billion New Mexico Educational Retirement Board, Santa Fe.
Mr. Foy said he will be discussing the situation with Wilshire officials.
James B.G. Hearty, who just left as executive director of the $29.3 billion Massachusetts Pension Reserves Investment Management Board, Boston, said while Mr. Nesbitt was not PRIM's main contact at Wilshire, his resignation is significant. "He certainly was a very valued and important part of Wilshire from our perspective," Mr. Hearty said. "At the same time, it's a broad organization with many skills and many good people.
Michael R. Beasley, managing director. Strategic Investment Solutions Inc., a San Francisco consulting firm, said: "I'm always disappointed when professionals who have spent the majority of their careers representing the buyer (plan sponsor) decide to leave. Many of us could have done financially better on the asset side (in money management). But we choose to represent the buyer. The buyer needs representation."
"It's a pretty significant change," said another one investment consultant who asked not to be named. "He's been a stable force. Everyone recognizes his name as attached to Wilshire."
The consultant expects other Wilshire consulting staffers to leave, but didn't know if clients would follow. "I don't know if it's going to hurt them (Wilshire) or not but to have someone of that stature leave certainly says something," the consultant said.