Delray Beach (Fla.) Police and Fire Retirement Fund consultant Smith Barney inaccurately reported the fund's performance from 1995 to 2003, the consulting firm reported to an investigator working on behalf of the $100 million fund.
Smith Barney's reports over that period didn't include fees paid to the funds' managers or to Smith Barney, Robert J. Mandel, Smith Barney attorney, wrote in a letter to Edward A.H. Siedle, president, Benchmark Financial Services, which is conducting a forensic audit of the Delray Beach fund's vendors.
In the second quarter of 2003, Smith Barney began including managers' fees when reporting performance, the letter said. "Performance was not corrected retroactively" until the firm provided revised performance reports at the Dec. 7, 2005, board meeting, Mr. Siedle said.
Smith Barney also used a benchmark for the fund that exceeded 100% - 65% S&P 500, 40% Lehman Brothers government/credit index, and 5% 90-day Treasury bill index - since January 2002, according to the letter. Mr. Mandel did not provide an explanation in the letter.
Also, Smith Barney measured equity and fixed-income managers' against benchmarks that were 95% invested in indexes reflective of each manager's style and 5% Treasury bills "because these managers traditionally have approximately 5% of their portfolios in cash or cash equivalents at any time," Mr. Mandel wrote.
Such a benchmark gives "a manager in a rising market an edge," Mr. Siedle said. "The manger is investing up to 100% in stocks, yet he's being measured against a benchmark of only 95% stock."
Stephen H. Cyper, counsel for the Delray Beach fund, declined to comment on the letter, saying Mr. Siedle is continuing the investigation and the fund is seeking additional documents from Smith Barney.
Mr. Mandel didn't return calls.
Alex Samuelson, Smith Barney spokesman, said: "We conceded there were reporting errors. That has been fixed for the last three years."
Smith Barney has been consultant to the fund since 1995, he added.