San Diego County Pension Keeps Manager Who Embraced RiskJames Nash and Esme E. Deprez
San Diego County’s pension board rejected a proposal to fire the consultant managing its $10.1 billion portfolio over the use of leverage to boost returns.
A vote to terminate the contract of Houston-based Salient Partners LP failed yesterday, with four board members in favor and five against. A county supervisor and the treasurer had said the “risk-parity” tactics of Lee Partridge, Salient’s chief investment officer, needlessly risked retiree income through use of futures contracts tied to securities and commodities.
Salient’s been paid $17.5 million over five years to manage the San Diego County Employees Retirement Association’s investments. The fund embraced risk even as the California Public Employees’ Retirement System and the California State Teachers’ Retirement System turned more conservative. San Diego’s gain in the year ended June 30 was 13.3 percent, compared with Calpers’ 18.4 percent and Calstrs’ 18.7 percent.
Salient “delivered $4.4 billion to SDCERA plan members at a lower cost and with less risk than 80 percent of similarly sized pension plans,” said Chris Moon Ashraf, a spokeswoman for the company at Jennifer Connelly Public Relations. “The average SDCERA plan beneficiary realized more than $111,000 in gains under Mr. Partridge’s stewardship for a total fee over five years of $414.”
The San Diego fund provides retirement benefits to more than 38,000 current and former employees of California’s second-most-populous county, according to its website.
Dianne Jacob, a county supervisor who sits on the pension board, voted to fire Salient, which she said during the meeting had become a “lightning rod.” Samantha Begovich, who won election to the board and assumed her seat in July, criticized the firm for “smokescreen tactics” and untrustworthiness.
“All the sudden we found out we have $22 billion in exposure,” Jacob said by telephone prior to the vote. “That should have never happened. The process is flawed. The hiring of Partridge in the beginning was flawed. Let’s get back to basics.”
Partridge invested as much as five times the value of the portfolio in stock, bond and commodities markets. Last month, as Jacob and County Treasurer Dan McAllister proposed ending Salient’s contract, the pension board voted to reduce the maximum leverage to twice the value of the portfolio. The board also voted to reduce the targeted volatility of the risk portfolio to 6 percent from 15 percent.
Some board members said firing Salient would be going too far.
“Going forward with the contract is in the best interest of this organization and its members -- it saves money,” David Myers, the board’s vice chairman, said at a Sept. 18 meeting. “The dysfunctionality of what is going on right now is, in my opinion, a breach of our responsibility to this organization.”
McAllister, the treasurer, said it’s unusual for a retirement system as large as San Diego County’s to delegate its investments to a private firm.
“This is an exorbitant amount of taxpayer dollars being spent and is unprecedented in any other county in California,” McAllister said by e-mail before the vote. “I have strongly opposed the adoption of an outsourced government structure.”