SDCERA's Partridge: Roles Not Confused, California Plans Should Share Resources

(March 15, 2011) – Lee Partridge, the San Diego County Employees Retirement Association (SDCERA) outsourced CIO, may be under pressure following the release of internal emails from the fund. However, he is anything but shy about defending himself – and the model he hopes to pioneer – from public criticism.

Emails recently obtained under the California Public Records Act highlight possible tension and confusion at the fund. One example: “If I’m not, or the CIO isn’t, managing the investments on a daily basis, then who is?” wrote SDCERA’s acting internal CIO Lisa Needle in an email to Brian White, the fund’s Chief Executive Officer. “Must be [Partridge], since it cannot be anyone else on staff.” Yet, Partridge defends his role. “I do not supervise staff, and I don’t review staff. My goal is solely to make sure investment strategy is implemented properly — like a project manager,” he told aiCIO, defending himself against accusations that he was overstepping his boundaries.

The San Diego fund has seen its fair share of controversy in the past half-decade. Its former CIO, David Deutsch, was fired in March 2009, after the fund lost more than $2 billion during the economic downturn while Deutsch was earning $209,000 a year. Since then, the plan hired Needle as an interim CIO and Lee Partridge, who was previously employed by the Teacher Retirement System of Texas, as external CIO meant to supplement the fund’s investing expertise. The board hired Partridge as an outside contractor with a contract worth up to $4.5 million and stipulations that he would be unable to direct staff. “Before I came on board, we had discussed pooling resources together with other plans in order to achieve greater economies of scale and lower external management fees,” Partridge told aiCIO. “As the year evolved, it became clear that growing Integrity Capital organically to achieve the economies of scale would take several years,” he said, Integrity Capital being the firm Partridge founded.

In November, Salient Partners, an asset and wealth management firm, announced it would acquire Integrity, naming Partridge as its CIO. “I needed to partner with an existing firm that already had those resources and expertise,” he said, referring to his association with Salient Partners while at SDCERA. When asked about apparent blurred roles and conflict at the San Diego public pension, Partridge replied that he and Needle are more than 90% in agreement across the board. Partridge said. “Lisa is a highly competent investment professional whom I greatly respect.”

Partially as a result of the seeming confusion within the fund, the SDCERA Board recently met to discuss the current state of play. Partridge noted that at the meeting, the Board discussed dividing the management of the fund’s public and private portfolios, with SDCERA staff focusing on the private section of the portfolio. Ennis Knupp proposed that Salient Partners focus on the fund’s public, more liquid assets. “The SDCERA Board has been very clear that they want the proper level of resources employed to manage this portfolio but in as efficient a manner as possible,” Partridge said. “Dividing responsibilities appears to be an effective way to meet that objective,” he indicated.

A larger aim for Partridge – and others, it must be said – is to increase efficiency, by “rounding up” the state’s city and county funds’ investment offices into one large investment office that would reside within a mutually owned cooperative, in order to achieve better terms with managers and economies of scale. “That’s the whole idea of CalPERS and the Commonfund,” Partridge said. “My thinking is that you don’t want one fund to be too big—you still need competition—but below a certain threshold you don’t have the right economy of scale. ”