The 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 that was posted on the association's website.
That review could occur as early as the board's scheduled April 7 administrative board meeting.
Also, at the April 21 investment board meeting, the board is expected to consider creating an approved list of 19 alternatives investment managers, with which Lee Partridge, the fund's outside portfolio strategist, and fund staff would have full discretion to make investments.
The board is also expected to discuss April 21 the investment staffing structure, according to an e-mailed response to questions by spokeswoman Johanna Shick. This could include division of power between its outsourced portfolio strategist and a chief investment officer, an internal position that has been vacant since March 2009.
The board is deferring a decision about filling the CIO position until after that discussion in light of Mr. Partridge's selling his company, Integrity Capital, to Salient Partners.
“When Integrity Capital was acquired by Salient, SDCERA gained access to additional resources (such as quantitative research, and identification of investment opportunities and risks) at no additional cost,” Ms. Shick wrote in the e-mail. “The board is revisiting the investment staffing structure in light of the additional resources Salient brings to bear.”
The flap around the Molpus timber investment occurred right after the March 17 board meeting at which the board approved it. Controversy arose over whether board members were informed that Salient Partners has ties with Molpus.
Salient Partners was a general partner on Molpus' first two funds, has two board seats out of a total of seven on those funds' boards and shares in the fees on those funds, said Michael Cooper, general counsel, chief compliance officer and risk manager of Molpus Woodlands Group LLC, Jackson, Miss., in an interview. Both funds are fully invested. However, Mr. Cooper said Salient has no involvement with Molpus' third fund, the one to which the association made the commitment.
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 interests based on the information he was provided by Molpus and Salient, according to the memo.
“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.”