Charges by investment staff at the $7.3 billion Arizona Public Safety Personnel Retirement System that a top-down culture allows management to retaliate against dissent are being investigated by an employment law firm.
Lewis and Roca LLP was hired by the pension fund “so we could have an independent investigation,” James Hacking, administrator of the Phoenix-based pension fund, said in an interview. The investigation, begun in mid-June, will be completed in the next month, Mr. Hacking said.
Mr. Hacking said he learned of the allegation after Mark Steed, acting chief investment officer and chief of staff in the Arizona Public Safety fund's investment office, told him the issue was raised during a May 20 investment team meeting. He said he then instructed Mr. Steed to write a memo detailing the events of the meeting.
Two of 10 investment staffers and the investment office's counsel have resigned in recent weeks.
The two top managers of the investment office — CIO Ryan Parham and Deputy CIO Marty Anderson — are named in the memo. They are both on medical leave. Mr. Parham has been out since May 7 and Mr. Anderson since May 23 because of scheduled open-heart surgery, Mr. Hacking said. Mr. Hacking said he expected Mr. Parham to return to work later this month and Mr. Anderson to return in August.
Mr. Steed's memo said one attendee of the May 20 meeting, who was not named, wanted to discuss the “team culture.” The person stated the culture was “inconsistent” with what was supposed to be the investment office's “Socratic” culture, as defined previously by Messrs. Parham and Anderson. Team members are supposed to be free to disagree and challenge each other in the best interests of the pension fund, Mr. Steed's memo said.
“However, the attendee asserted that the culture is not Socratic and in fact team members are punished for disagreeing with management,” the memo said.
The memo also details an unspecified punishment levied by Messrs. Parham and Anderson against portfolio manager Mark Selfridge for asking what was described in the memo as “rude, offensive and disrespectful” questions in e-mails he sent to officials at Desert Troon Cos., one of the pension fund's external real estate managers.
Desert Troon President Daniel Smith was out of town and not available to comment for this story on July 19.
Mr. Anderson said at the May 20 team meeting that Mr. Selfridge was disciplined for his “tone,” the memo states, but seven members of the investment team disagreed and stated that he was disciplined because of his questions.
Mr. Hacking confirmed that Mr. Selfridge resigned, as did portfolio manager Anton Orlich and Andrew Carriker, the chief investment counsel. Mr. Hacking said all of them questioned whether valuations made by Desert Troon in a real estate portfolio managed for the Arizona public safety pension fund were proper, but he could not say if they resigned because of that.
Mr. Hacking said he and the board of trustees believe the valuations were proper. He added that on July 18, at the direction of the pension fund's board, he asked the state auditor-general to look into the valuation issue and make an independent determination “as a result of all the controversy.”
Mr. Hacking's letter to the auditor-general said Desert Troon concluded the value of the real estate assets managed is around $303 million. But Mr. Orlich, the portfolio manager who quit, thought it should be $90 million lower. The distinction is important because, generally, the higher the valuation, the higher the money manager's fee.
Mr. Hacking said in the interview that Mr. Selfridge was not disciplined because of questions, but because his e-mails to Desert Troon were “offensive.”
Mr. Steed's memo said the “unhealthy culture” at the investment office became worse following a sexual harassment incident in April 2012. Mr. Hacking said Mr. Anderson was disciplined for making an offensive remark to a female employee, and was demoted, losing the chief of staff title that Mr. Steed now holds.