San Diego’s Outsourced Pension Assets Return 9% in 2014

A San Diego pension fund that paid a Houston-based adviser $8 million to manage its portfolio posted returns of 8.79 percent last year, one of the top rates among similar plans, the consultant said.

The return for the San Diego County Employees Retirement Association beat its benchmark by more than 1 percentage point, said Lee Partridge, chief investment officer of Salient Partners LP, who has managed the $10.3 billion portfolio since 2009.

Board members of the fund have moved to fire Partridge and hire an internal investment chief, saying his strategy of investing in futures and derivative contracts needlessly risked the retirements of the fund’s 39,500 members. The fund is scheduled to sever its relationship with Salient in November, according to a report presented to the board today.

“You handsomely outperformed almost all U.S. pension plans last year,” Partridge told board members today. “You’ve got a huge period of outperforming.”

Reduced Risk

If the board had not voted in September to reduce the amount of money that could be invested in futures and derivatives contracts, the so-called risk-parity strategy championed by Partridge, the fund would have returned 9.95 percent last year, Partridge said.

Board member Dianne Jacob, a San Diego County supervisor who has urged firing Partridge, said the numbers show only a “snapshot in time” that “don’t mean a whole lot.”

The San Diego fund took on such investments as the California Public Employees’ Retirement System and the California State Teachers’ Retirement System turned away from real estate and hedge funds to shield themselves from risk.

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. The California funds, the two largest public pensions in the U.S., have not yet reported returns for calendar 2014.

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