Sonoma County puts Guggenheim on watch on concerns about company management

Sonoma County Employees' Retirement Association put Guggenheim Investments on its watchlist following concerns about the management of the company, including the firing of 22 institutional sales and distribution officials, and a SEC examination.

Julie Wyne, retirement administrator, confirmed in an email that the board placed Guggenheim, which manages a $76 million bank loans strategy for the $2.7 billion Santa Rosa, Calif., based pension plan, on watch at its meeting on Nov. 29.

The pension fund released a Dec. 1 letter from James Failor, its chief investment officer, to Leigh Ann Poggio, Guggenheim Investments managing director, explaining why the firm was put on watch.

Mr. Failor said after Alexandra Court, Guggenheim's global head of institutional distribution, fired the 22 staff members in the spring of 2016, the pension fund requested that Guggenheim officials fill out a due-diligence questionnaire as part of a review process. He said Ms. Court and her supervisor, managing partner Andrew Rosenfield, said they had no time to fill out the questionnaire.

"He (Andrew Rosenfield) informed me that they had to rationalize the business so lengthy questionnaires and travel by investment staff to visit clients would be more limited going forward," the letter reads. "In the end, your team provided the information requested but only after considerable pressure from SCERA staff and our consultant."

Mr. Failor also expressed concern that Guggenheim has not hired staff to replace the individuals that Ms. Court fired but has reassigned duties to other personnel to cover their work. "We are concerned that with the current level of staff, you may not be able to meet the needs of your institutional clients," he said.

Mr. Failor said his understanding is that Ms. Court is on leave, but remains an employee of Guggenheim.

Mr. Failor in his letter also mentioned press accounts that Scott Minerd, Guggenheim's chief investment officer, and Mark Walter, founder and CEO of Guggenheim Partners, Guggenheim Investments' parent company, "are in disagreement about firm direction."

"We also understand that this has been denied," he said. "It's difficult not to worry that their alleged disagreement(s) may be material and encompass this issue of properly servicing clients."

Mr. Failor also addresses an SEC examination into Guggenheim. He said Guggenheim officials have told him that it is a "standard examination and ... no enforcement action is being taken." But Mr. Failor expressed concern that the firm's investment personnel could be distracted.

"To state the obvious, we would like to see minimal distractions so that the investment team can more easily focus on adding value through investment decision-making," he said.

In a response to Pensions & Investments, Mr. Minerd said in a statement: "We value our relationships with our clients and their consultants and understand the importance of transparent communication and an ongoing dialogue," he said. "As always, we are committed to addressing any questions they may have, and to resolving any concerns."

The statement did not address the issue of the termination of the employee or the alleged dispute between Messrs. Minerd and Walters.