San Diego County Employees Retirement Association board voted Thursday 5-4 to keep its contract with its outsourced CIO, Integrity Capital, a subsidiary of Salient Partners.
Salient Partners also manages $3.5 billion, or about 35%, of the pension fund’s $10.2 billion in assets. Salient’s management of the pension fund’s assets was not put up for a vote.
“We have a difference in opinion in how to proceed,” said Dianne Jacob, the trustee who made the motion to terminate Salient Partners. “Any way the vote goes, we will end up in the same place and we will be terminating our contract with Salient.”
Early on in the meeting, Scott Whalen, executive vice president and senior consultant at Wurts & Associates recommended the board refrain from terminating Salient and reassess its outsourced CIO model. During the reassessment period, Mr. Whalen recommended the board stick with its current asset allocation, adopt the proposed investment policy statement and move risk parity and managed futures to commingled funds from separate accounts “to address concerns about leverage.”
Staff is scheduling a two-day special meeting as soon as possible, during which it will reassess the outsourced CIO structure and asset allocation, Ms. Jacob noted.
The motion would have given Salient 30 days’ notice of its termination and instructed the staff to keep Salient for a 180-day transition period.
Steven P. Rice, an attorney with law firm Crowell & Moring who is also SDCERA’s chief legal counsel, advised the board members that if they terminated Salient on Thursday, it would be a breach of their fiduciary duty because the process to accept a new asset allocation and hire Salient as its outsourced CIO in the first place took a year of deliberations.
At another point during the meeting, Mr. Rice also advised the board that private meetings between Lee Partridge, Integrity Capital founder and Salient chief investment officer, and three board members in the week before Thursday’s board meeting did not violate California’s open meetings law. During the meeting, Kristina Maxwell acknowledged she was one of the board members in the private meetings.
Board member E.F. “Skip” Murphy acknowledged he met with Mr. Partridge before the Sept. 18 meeting when the idea of deciding to terminate Salient was first proposed.
Also at Thursday’s meeting, the board deferred adopting a proposed investment policy statement and a new contract with Salient, keeping the status quo pending its reassessments of the asset allocation and its outsourced CIO model.
During questioning by board members, John A. Blaisdell, Salient’s CEO and managing director, said SDCERA is Salient’s biggest institutional and only pension fund client and its only outsourced CIO client. He added the outsourced CIO model is not scalable. Salient has $23 billion under management. The rest of Salient’s institutional clients are 50 to 100 small endowments and foundations, he said.
