San Diego County Employees' Retirement Association will be reviewing its $50 million commitment to Molpus Woodlands III ”out of an abundance of caution,” according to a memo to the board of the $7.99 billion system from CEO Brian White posted on the association's website.
The board on March 17 approved the investment in the timber fund, but controversy arose over whether board members were informed that Salient Partners, the association's portfolio strategist, had previous ties with Molpus.
Salient Partners was a general partner on Molpus' first two funds, had two board seats on those funds' boards and shared in the fees on those funds, said Michael Cooper, general counsel of Molpus Woodlands Group, in an interview. However, Mr. Cooper said that Salient has no involvement with Molpus' third fund, the one in which the association has invested.
Even so, Steve Rice, the association's general counsel, advised that “investment counsel and others should have brought this issue up during the due diligence process so that it could have been addressed proactively with the board,” according to Mr. White's memo. Mr. Rice also said there was no conflict of interest based on the information he was provided by Molpus and Salient.
“After reviewing the facts, I believe you will come to the conclusion that no further action is required,” Mr. White wrote. “However, out of an abundance of caution, we will bring this issue back to the board at the next meeting so that the board can discuss it and determine whether there should be another vote on the Woodlands III investment.”
The next board meeting is scheduled for April 7.
Lee Partridge, chief investment officer at Salient, said in an e-mail that he informed the board about Salient's relationship with Molpus.
He said during the meeting, ”Salient has known Molpus for many, many years and has done some independent work with them, although we had nothing to do with the sourcing of this particular investment.”
He said in the e-mail that his statement at the meeting was enough.
“I believe that was sufficient and we do not have a current relationship with Molpus other than managing the legacy funds we raised in a previous partnership. We do not have any interest in this investment,” Mr. Partridge stated in the e-mail.