San Diego County pension fund suffers new shock

Already seeking a CIO, CFO and a general counsel, the San Diego County Employees Retirement Association now is without a CEO after Brian White abruptly quit last week.

This leaves the $10.4 billion pension fund — whose board not only is searching to fill those spots, but is also reviewing its asset allocation — with a management vacuum being filled in the interim by a management consultant hired a month ago.

On March 19, Mr. White — who had been the CEO and head administrator for 18 years — resigned during a closed session at a board meeting.

Mr. White decided to quit “to pursue new challenges and opportunities,” Dan Flores, SDCERA spokesman, said in an e-mail. Mr. White could not be reached for comment despite multiple attempts.

His decision to leave comes during a rancorous time for the fund. Trustees are in the midst of hiring an in-house chief investment officer to replace Salient Partners LP, the firm's outsourced CIO.

Salient, or its Integrity Capital Services unit, has been the fund's portfolio strategist or outsourced CIO since October 2009.

The often-heated debate over replacing Salient has divided the board, which also needs to hire a new chief financial officer and a new general counsel to replace executives changing jobs or retiring.

For the immediate future, the board selected David Wescoe, president of Efficient Market Advisors LLC, SDCERA's management consultant, as interim CEO “until the board hires a qualified person to fill the position,” Mr. Flores said in another e-mail. Mr. Wescoe and Efficient Market Advisors were hired last month to assist with SDCERA's other personnel searches.

On March 19, the board approved, in an 8-1 vote, a mutual separation agreement with Mr. White. He will receive a severance of about $250,000, roughly one year's pay plus accrued vacation and sick pay. David Myers, vice chairman, cast the sole “no” vote. No reason was given for his vote.

Sources speculated that Mr. White decided to leave because he no longer had the support of the majority of the board.

E. F. “Skip” Murphy, SDCERA's board chairman, said in an e-mail that Mr. White “has been a fine, hard-working representative of SDCERA for the entire time of his tenure.” Mr. Murphy declined to “speculate” on Mr. White's reasons for leaving.

“I know that he desires to keep working for some time and will undoubtedly pursue something of his liking,” Mr. Murphy wrote. He acknowledged the board has a lot on its plate, but stressed the “position searches and hiring will continue.”

“Having said that, nothing should be read into certain personnel leaving SDCERA,” Mr. Murphy added. “Most were planned and seemed to hit at the same time.”

Sources said the majority of the board began to lose faith in Mr. White in September, when he asked trustees to approve a new contract that would have paid Salient Partners a fee of 11.5 basis points for two quarters and 10 basis points thereafter. That would put the value of the contract between $10 million and $11 million. During the Sept. 4 meeting, some board members — including Dianne Jacob, a San Diego County supervisor, and Dan McAllister, county treasurer and tax collector, as well as new board member Samantha Begovich — complained the contract was more than they believed had been previously approved. The board eventually ended up approving a contract worth $8 million at a later meeting.

When he introduced the contract, called an amendment to investment advisory services contract, Mr. White said that terms of the contract had been approved at a meeting on June 5. But both Ms. Jacob and Mr. McAllister said they had not agreed to pay Salient that much.

“I listened to the June 5 meeting ... there was no discussion on the 11.5 basis points for six months,” Ms. Jacob said, according to a video recording of the Sept. 4 meeting; “11.5 basis points for six months would be $750,000. I would not support that.”

On Sept. 5, SDCERA filed suit against the county over its inability to give Mr. White bonuses. SDCERA officials tried to give Mr. White compensation above the top range at the time for the SDCERA CEO of $249,745.60 annually.

Mr. Murphy did not directly respond to a question about whether most board members had lost faith in Mr. White.

Mr. McAllister, Ms. Jacob, Mr. Myers and board members Dick Vortmann and Mark Oemcke did not provide details about Mr. White's decision to leave. The remaining three board members could not be reached by deadline.

In interviews before Mr. White quit, Ms. Jacob and Mr. McAllister pointed to the hiring of Mr. Wescoe as a step in the right direction.

“We brought in David Wescoe because he has a stellar reputation. He was responsible for the major turnaround in San Diego City (Employees' Retirement System),” Ms. Jacob said.

Mr. Wescoe led the then $3.82 billion city employees' pension fund from 2006 to 2009, following a scandal that included the indictments of five fund officials and brought the pension plan to the brink of insolvency.

Under San Diego County's agreement with Efficient Market Advisors, Mr. Wescoe reports directly to the board, bypassing Mr. White. The agreement also called for Mr. Wescoe to be provided “facilities and support at SDCERA's offices.” All of this put Mr. Wescoe and his firm at least on par with Mr. White.

As the interim CEO, Mr. Wescoe will have his hands full. SDCERA's board members are polarized, mostly around the issue of Salient Partners.

Even though officials are in the midst of a search for an in-house CIO, the board has not been able to muster the votes to terminate Salient, which also manages $7.76 billion — about 75% of total fund assets — in a combination of enhanced cash, risk parity, hedge funds/relative value and managed futures strategies. Salient is scheduled to stay on at least through mid-November; any new CIO hired is expected to begin work before summer.

Mr. Myers, the vice chairman and a pro-Salient board member, recently threatened to sue Ms. Begovich, an anti-Salient board member, for allegedly calling him a racist, according to an e-mail sent by Ms. Begovich to Mr. White that was obtained by Pensions & Investments. Ms. Begovich, in that e-mail, asked the pension plan to pay for her legal costs if that happens. Ms. Begovich also accused Mr. Myers of racial and sexual harassment in that same e-mail. Mr. Myers could not reached for comment and Ms. Begovich declined comment beyond the e-mail.

Mr. Murphy, in his e-mail, characterized “the reported "drama' between a couple of the board members was merely a 'bump in the road' that all of us hope we have gotten past and will continue to do the work that we were elected or appointed to do as trustees.” n