Updated with correction
Close to a year after trustees of the $7.2 billion San Diego County Employees Retirement Association outsourced the fund's chief investment officer post to Lee Partridge and his firm, Integrity Capital Services LLC, the honeymoon could be over.
The plan underperformed its benchmark in July by 74 basis points because Mr. Partridge and association staff invested only a portion of a new allocation to U.S. Treasury futures.
The new target asset allocation divides the portfolio into three parts: 40% in total growth; 70% in total stable value; and 25% in a total inflation-sensitive portfolio.
Total growth encompasses equities, high-yield fixed income/credit and private equity. Emerging-markets debt, U.S. Treasury futures, global macro/managed futures and relative value are in the total stable value portfolio, and U.S. Treasury inflation-protected securities, real estate and natural resources are in the inflation-sensitive portfolio.
The Treasury futures are a linchpin of the new allocation. About $3 billion was earmarked for Treasury futures. Of that, Mr. Partridge invested only $500 million between July 1 and the Aug. 19 SDCERA board meeting. As a result, the fund returned 3.89% for the month of July, vs. 4.63% for its custom benchmark.
When asked about the underperformance, Dan McAllister, San Diego treasurer and tax collector and SDCERA board member, said: “We measure long-term performance. We never measured on the short-term stuff.”
But he added the failure to follow fund policy on the Treasury futures exposure was an issue to be discussed at future meetings.
“There is the opportunity cost and profit that would have inured to our benefit had they deployed when they said they were going to,” Mr. McAllister said.
Now with the futures prices up, Mr. Partridge and general consultant Steve Voss of Ennis Knupp & Associates Inc. told the board at its Aug. 19 meeting that they would seek board approval to change what they both called “the benchmark.”