Until now, Lee Partridge has been a lucky guy with excellent timing.
His advisory firm — Integrity Capital Services LLC — has no office and no staff, yet he managed to snag a contract for Integrity that will pay up to $3.21 million over three years. The gig: external chief investment officer of the $6.9 billion San Diego County Employees Retirement Association.
Mr. Partridge's base management fee of 0.85 basis points amounting to about $535,000 annual base pay (depending on the fund's asset size) plus a 0.85 basis-point annual incentive fee is six times the $209,000 that David Deutsch earned annually as CIO before he resigned and the fund's board decided to outsource the job.
Until last week, Integrity and Mr. Partridge were on track to earn $10.6 million a year plus incentives if the board hired his firm for an even larger job: outsourcing the fund's total investment operation, including terminating the 10-person staff.
On April 1, however, lawyers told the board that hiring Integrity would run afoul of state conflict-of-interests law. Now, the board might reconsider the whole idea.
Even without taking over all of the investment duties, Mr. Partridge has made significant changes in the fund in a relatively short period.
For example, the board adopted a new investment policy statement on March 18 that gives Integrity and Mr. Partridge the power to hire external money managers for specific mandates and over-the-counter derivatives counterparties from approved lists prepared by Integrity and the association's staff — subject to final board approval.
The board also adopted a complex new asset allocation at Mr. Partridge's suggestion. It leverages total plan assets up to 135% through the use of derivatives and up to 5% of total fund assets in “other investments” that do not fall within the stated asset allocation or tracking error limits.
“I envision full latitude to access any product as long as it is within tracking error,” Mr. Partridge told the board at the time.