SDCERA Hires its Insourcing Consultant as CEO

David WescoeThe San Diego County Employees Retirement Association (SDCERA) has named interim CEO David Wescoe as its permanent chief less than a month after terminating outsourced-CIO (OCIO) Salient Partners.

He will begin his full-time duties on September 18.

Wescoe joined the $10.6 billion public plan in February as a consultant to guide the fund’s transition from an OCIO to internal CIO Stephen Sexauer. In March, then-CEO Brian White resigned after nearly two decades in the position.

“After a thorough and comprehensive national search process, the board of retirement is very pleased to have found the best individual to assume leadership of this organization,” board Chair Skip Murphy said in a statement.

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Murphy also praised Wescoe’s contributions and leadership since taking on the interim-CEO role in April.

“SDCERA is in the ‘life-touching’ business; our responsibility to our members impacts the livelihoods of thousands of individuals,” Wescoe said. “Strengthening the fund and internal expectations for the benefit of SDCERA members over the long term is a terrific opportunity, one that I am very excited to have.”

In the midst of numerous transitions, SDCERA also announced it would lower its investment return assumption from 7.75% to 7.5%.

The change, along with reductions in inflation and salary increase assumptions, will be applied to the June 30, 2015 actuarial valuation used to determine contribution rates for fiscal year 2016, the pension plan said.

Wescoe is currently president of investment advisory firm Efficient Market Advisors. Prior to this, he served as chief executive for the Motion Picture Industry Pension and Health Plans and CEO of the San Diego City Employees’ Retirement System.

The new chief has experience as a corporate finance lawyer, having served as counsel to commissioners at the US Securities and Exchange Commission. Wescoe also spent time as CEO of Northwestern Mutual Investment Services.

He holds a bachelor’s degree from the University of Kansas and a juris doctor from Columbia Law School.

The majority of private equity investors expect outperformance of more than 4 percentage points above public markets from their allocations to the sector, research from Preqin has found.

A survey of more than 100 institutional investors in June this year showed 49% were expecting such outperformance, compared to the 35% with similar expectations in June 2014. A further 39% quizzed this year felt their allocations should outperform listed stocks by 2 to 4 percentage points.

“The competitive fundraising market has led to increased efforts from general partners in nurturing a healthy relationship with their investors.”“Between 2013 and 2014, a notable period for bull market conditions with significant stock market highs, there was a decrease in the proportion of investors that expected their private equity portfolios to beat the public market by more than 2%,” Preqin reported.

The uptick in expectations may have been driven by “the apparent success of respondents’ private equity investments in the last 12 months,” the data firm suggested.

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Investor expectations of private equity While the performance of private equity funds has undoubtedly improved in the short term—roughly a third of respondents (35%) said their expectations were surpassed in the past 12 months, compared to just 12% in June 2014—investors in different regions varied in their satisfaction with managers.

In North America, 35% of investors said performance “exceeded expectations”, compared with 43% in Asia and 50% in Europe. Investors outside of these regions were the least satisfied: just 25% reported better-than-expected returns for the year to June 30.

Paradoxically, while Europe had the most satisfied investors, it also had the greatest proportion of dissatisfied private equity buyers: 19% said their allocations had “fallen short of expectations”.

As the private equity sector grapples with increased scrutiny of fee practices, Preqin claimed that “the competitive fundraising market, with more than 2,200 private equity funds seeking commitments, has led to increased efforts from general partners in nurturing a healthy relationship with their investors, in order to secure more re-ups in the future.”

However, 40% of investors said alignment of interests could still be improved when it came to management fees, and 32% said the same for performance fees.

Preqin’s report showed continued signs of difficult conditions for the sector’s operators, however. Unused cash rose to $965 billion in June, nearly half the total estimated capital invested in private equity. In a July interview with “Wall Street Week”, industry luminary David Rubenstein argued that this capital was likely to be deployed as soon as there was a market correction—much like that seen at the end of August.

Fundraising fell in the first half of 2015 compared with the same period last year: $253 billion was raised by 509 funds, down from $272 billion in 656 funds in the first six months of 2014. Preqin speculated that the record amount of dry powder held by private equity funds was likely to blame for this, as performance and money returned to investors have continued on an upward trend.