San Diego County Employees Retirement Association board today adopted “in concept” a new model to outsource the duties of in-house investment management staff to an outside firm, which it calls a dedicated adviser, and will distribute an invitation-only RFP as early as March 26.
The board of the $7.2 billion association also adopted a new asset allocation that adds leverage to the portfolio.
Six months ago, the board outsourced its CIO function to Integrity Capital Services. The plan is for the new “dedicated adviser” to implement the asset allocation recommended by ICS.
A board committee will decide on a schedule for the search. CEO Brian White recommended at today's meeting a timeline that would call for RFP responses by April 9 and a recommendation to the board at its May 6 meeting, but some board members voiced concerns that it was too aggressive. The board's consultant, Ennis Knupp, will assist in the search and develop a list of candidates, Mr. White said.
Integrity Capital, which was launched last August by Lee Partridge, former deputy chief investment officer at the Texas Teacher Retirement System, has offered to provide full investment management services to the association, according to materials submitted to the board.
Integrity Capital will be able to bid for the RFP, Johanna Shick, association spokeswoman wrote in an e-mail response to inquiries. Ennis Knupp, which provides similar services to other pension funds, would not be invited to bid, she wrote.
Separately, the board adopted the new asset allocation, with the transition delayed until July 1 because of the outsourcing move. The leverage brings the total target allocation to 135%. The association's new target allocation is 20% to global equities and 5% to emerging market equities and doubles private equity and real estate to 10% each. High yield's target is now 5%; emerging market debt, 10%; asset allocation strategies, 10%; relative value strategies, 10%; and U.S. Treasuries, 40%; whether the association had previous target allocations to these asset categories could not be learned by press time.The new target allocation also has 10% for natural resources and other real assets and 5% to Treasury inflation-protected securities.
The current allocation has a 24% allocation to global equities, 23% to domestic equities, 25% to domestic fixed income and 4% for international fixed income.
The board adopted a new investment policy statement that delegates more authority to its portfolio strategies — the board's term for the role filled by Integrity Capital — including hiring managers for specific mandates and over-the-counter derivatives counterparties from approved lists of investment managers and counterparties.
The board also delegated to staff the authority to commit capital — up to 1% of total association assets to a single fund or 5% of total association assets to a single manager — to private equity, real estate, natural resources, infrastructure and other real assets funds, unless the manager is not on the approved list. If the proposal to hire the “dedicated adviser” is approved, that firm would have the same authority.
The board will approve the manager and counterparty lists at future meetings. No timetable was set for the approval.