San Diego County Employees Retirement Association board is to decide at its Oct. 2 board meeting whether to terminate its contract with its outsourced CIO, Salient Partners.
At that meeting, the board also will decide whether to appoint its general investment consultant Wurts & Associates as outsourced CIO on an interim basis and whether to set a special meeting for the board to discuss alternatives to $10.2 billion SDCERA’s current model, under which it has outsourced much of its investment management oversight and administration to Salient.
The Oct. 2 meeting will take place one day after the start of an amended contract with Salient, which would move from a partially outsourced CIO role to a fully outsourced CIO role.
The motion for termination was proposed at the Sept. 18 board meeting by trustee Dianne Jacob, who is also on the San Diego Board of Supervisors. In a statement preceding the motion, she noted that in the four years — July 1, 2010, to July 31 — that Salient has been SDCERA’s portfolio strategist, overseeing the pension fund’s investments, SDCERA has had a 12% annual net return with costs ranging between $89 million and $100.4 million. By contrast, the $6.9 billion San Diego City Employees’ Retirement System has earned 14% annual return with $23.2 million to $32.6 million in fees during the same period. “We are clearly not getting our money’s worth,” Ms. Jacob said.
Among the alternatives to an outsourced CIO structure suggested by Ms. Jacob that could be discussed at a special meeting, which has yet to be set, are returning to a traditional governance structure with in-house investment staff and a CIO. Another idea is to jointly oversee the plan with another pension plan or pension plans.
Another trustee, Dan McAlister, who is also the county’s treasurer, said he believed SDCERA needs an internal staff to oversee outside money managers. He noted SDCERA has paid Salient CIO Lee Partridge’s former firm and Salient subsidiary Integrity Capital Serivces $17.5 million in fees since 2009. SDCERA would pay an additional “above market” rate to Salient of $50 million over five years when Salient becomes the fully outsourced CIO starting Oct. 1.
“As a board member ... I’m frustrated with the CEO’s mismanagement,” he said.
Brian White is CEO and until earlier this year was also the pension fund’s CIO, he noted. In preliminary comments, Mr. White notified the board that SDCERA’s entire investment staff had accepted positions with Salient and resigned their positions with SDCERA. After the board voted to consider terminating Salient, Mr. White informed the board that he had given the investment staff the opportunity to recant their resignations.
