Clashes over compensation for the internal staff and outsourced-CIO (OCIO) of the San Diego County Employees Retirement Association (SDCERA) has divided trustees and now sparked a lawsuit.
At the board’s most recent meeting, a new contract for OCIO provider Salient Partners (operating as Integrity Capital) met with staunch disapproval from one trustee, and dismay from another who felt she had passed it with misleading information.
“A contract with no ties to performance is something that I cannot support. And so I will be voting ‘no’ on that when the time comes.” —SDCERA trustee
In June, the board approved full outsourcing of its $9.9 billion portfolio to Salient Partners under the leadership of firm founder Lee Partridge. The new contract sets Salient’s annual fee at 11.5 basis points of assets under management for the first six months and 10 basis points after that. Salient agreed to employ SDCERA’s three investment staff members as part of the deal, and all have accepted the offer. In turn, SDCERA will pay Salient roughly $10 million per year for its services.
“At a time when pension managers are getting paid less and less across the board, it is well documented that we’re paying exorbitant, outlier-type fees with no incentives except to grow the fund,” said Trustee Samantha Begovich during the September 4 meeting. Begovich joined the board in July, following its signing of the new contract. After researching the OCIO compensation scheme, she said she was shocked the fund has agreed to it.
“Why is the contract fixed without any correlation to performance?” Begovich continued. “As someone who comes into contact with members frequently, I have not heard one person say to me, ‘Wow, this is an amazing contract. We should proceed’. A contract with no ties to performance is something that I cannot support. And so I will be voting ‘no’ on that when the time comes.”
Other board members stood by their agreement with Salient. One noted that performance-linked compensation had been “extensively discussed” but dismissed because “the cons—the behavior it might induce—outweighed the pros.”
Compensation for SDCERA’s 80 or so remaining internal staff has created as much strife as the OCIO fees.
After several failed attempts to raise CEO Brian White’s pay beyond the county’s mandated range, the board has filed a lawsuit for power over its payroll.
“The county has refused to implement decisions of the board as to the amount of compensation for various SDCERA employees,” the complaint, filed September 5, stated. “The board of retirement cannot effectively administer the system and perform its fiduciary duties without this authority.”
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