SDCERA Internal Emails Paint Picture of Confusion and Turmoil Over CIO Role

(March 9, 2011) — Following the release of a string of internal emails by the chief investment officer, portfolio strategist, and chief executive officer of the San Diego County Employees Retirement Association (SDCERA) that portray confusion and turmoil regarding roles and responsibilities, the fund held a board retreat today to discuss the structure of the investment organization.

Internal emails obtained under the California Public Records Act show that having both an internal CIO and a contracted portfolio strategist at the the nearly $8 billion public pension scheme has raised questions about their independent roles and how they should cooperate. “If I’m not, or the CIO isn’t, managing the investments on a daily basis, then who is?” wrote SDCERA’s acting CIO Lisa Needle in an email to Brian White, the fund’s Chief Executive Officer. “Must be the Portfolio Strategist, since it cannot be anyone else on staff.”

SDCERA’s CIO was fired in March 2009after the fund lost more than $2 billion during the economic downturn while the CIO 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 a portfolio strategist to supplement the fund’s investing expertise. At first, Partridge declined the offer because county rules prohibited employees from earning a salary of more than $301,000 a year. Eventually, 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.

Yet, instead of calling the shots and outlining his staff’s responsibilities, SDCERA’s CEO has reached out on numerous occasions to Partridge for advice on staff responsibilities, the emails show. While San Diego County rules prohibit outside contractors from supervising public employees, whether Partridge is following such regulations is unclear. “We might want to touch on what should happen when the SDCERA team does not take action on issues I’ve asked them to address,” Partridge wrote to White in January. “I really want to shift our emerging markets allocation away from the managers we have to more intelligent, lower fee exposure but I’ve been confronting resistance and feet dragging for a while.”

Needle noted that the revised description of the scheme’s chief investment officer role from managing the day-to-day investments to managing the day-to-day investment staff has “strong implications” regarding the responsibilities of the position. Needle explained to White that therefore Partridge should assume complete ownership of the fund on a daily basis. The problem, she indicated, is the fact that her role allows her to only interact with Partridge and his team four days per month. “It would be useful to have that clearly articulated to all parties involved so that responsibility for the fund can be accepted by the appropriate person,” she wrote.

In response to Needle’s concerns, Partridge, who is also CIO of Houston-based Salient Partners, wrote to SDCERA’s CEO White: “We can manage all day-to-day activities from Houston but I don’t think that’s what she really wants…Nonetheless, I’m sensitive to her frustration and really just want what is best for the fund…Lisa also expressed some consternation about the revised job description. I think she would like to be described as leading the implementation of the policy portfolio with concurrence by Salient.”

The decision by SDCERA to seek outside help for investment expertise reveals blurred lines in regards to its management structure. “Because you’re competing with positions in the private sector — with different salary structures there — public plans struggle to find the right talent,” fund spokesperson Johanna Shick told aiCIO last month. “I think all public funds struggle with finding and retaining qualified investment staff within the salary limits typically allowed within the public sector.”

Shick responded to an article published in the San Diego Union-Tribune titled “County Outsider Calling Some Pension Shots,” saying that it paints a misleading picture. “Our recent returns (up over $1 billion July through December) are a testimony to the fact that the model SDCERA is using is working,” she said when contacted today. She added that the emails obtained under the California Public Records Act reflect the normal role clarification that occurs anytime a position is added or a department re-organizes. “The portfolio strategist does not supervise staff,” she said. “Of course to implement and clarify the portfolio, he communicates with staff as needed. SDCERA and Partridge have a strong, professional relationship. Healthy organizations encourage open discussion and debate. The e-mails reflect that discussion.”