Updated with correction.
Jeffrey Baker, an investment officer at the $8 billion San Diego County Employees' Retirement Association, claimed in a civil service complaint that he is being laid off for warning that the fund took on excessive risk in its high-yield and Treasury bond portfolios, said Michael Aguirre, partner with law firm Aguirre, Morris & Severson and former San Diego city attorney, who is representing Mr. Baker.
Mr. Baker's complaint, filed May 17 with the San Diego County Civil Service Commission, seeks at least $500,000 in damages and to keep his job.
Mr. Baker claims he alerted system officials and Lee Partridge, chief investment officer for consulting firm Salient Partners and the system's external portfolio strategist, that a $200 million active Treasury strategy exceeded the system's total risk budget. Mr. Baker later discovered that the investment, the HIM Treasury Program, managed by Hoisington Investment Management, was down about 25% and had a tracking error close to four times above the 0.75% limit, the complaint states.
Mr. Baker also alleges that in January Mr. Partridge wanted to replace a domestic equity manager, Baillie Gifford, with another manager that took more active risk.
In a series of e-mails between Messrs. Partridge and Baker, “Mr. Partridge stated that he wanted to put his entire active risk budget in emerging markets equity,” Mr. Baker alleges in his complaint. “Mr. Baker found this to be a serious red flag based on Mr. Partridge's performance-based fee with Partridge's pay increasing if the more active risk fund improves returns.”
“If you continue to put a huge amount of money on the blackjack table you are going to lose,” Mr. Aguirre said.
“SDCERA's personnel issues are confidential matters. SDCERA will establish through the Civil Service Commission process that Mr. Baker's claim has no merit,” according to a SDCERA statement to Pensions & Investments.
On May 19, the board adopted a new organizational structure that eliminates an investment officer position, the statement adds.
“With respect to the SDCERA Treasury program, SDCERA's risk budget applies to the total investment class, not individual investments,” it states.
“Additionally, the role of the Treasuries asset class in the portfolio, particularly the Hoisington investment and its potential volatility, was discussed at the numerous board meetings,” it states. “Therefore, no one can be characterized as a ‘whistleblower' on this issue because the issue was fully disclosed and well known before and after the investment was made.”
Mr. Partridge could not be reached for comment by press time.