SDCERA Whistleblower: Outside Consultant Breached Risk Limits

(May 24, 2011) — Jeffrey Baker, an investment officer at the $8 billion San Diego County Employees Retirement Association (SDCERA), claims in a civil service complaint that risk limits have been breached by contracted portfolio strategist Lee Partridge. 

Michael Aguirre, partner with law firm Aguirre, Morris & Severson and former San Diego city attorney, is representing Baker.

According to the complaint obtained by the San Diego Union-Tribune, Baker claims that Partridge breached the limits of his role, assuming excessive risk in its emerging markets and Treasury bond portfolios — risk limits that went beyond what the board of trustee allowed, according to the complaint. Baker filed the civil-service complaint May 17 with the San Diego County Civil Service Commission, alleging that his position is being eliminated as a result of his concerns. The complaint notes that Baker seeks at least $500,000 in damages and his old job back.

The complaint explains that Baker discovered that the investment, the HIM Treasury Program, managed by Hoisington Investment Management, was down about 25% and had a tracking error close to four times above the 0.75% limit. The San Diego Union-Tribune also reports that based on emails provided by Baker, he began raising questions about the part of the Treasury program that is managed by Hoisington in August 2010.

The complaint states: “In 2009 Mr. Lee Partridge was employed as an SDCERA investment portfolio strategist consultant. Mr. Partridge advised SDCERA to invest $200 million in the HIM Treasury Program. On August 30, 2010, Mr. Baker alerted Mr. Partridge the risk associated with Hoisington Treasury Program fund exceeded SDCERA’s investment policy risk limits. Mr. Partridge disagreed, dismissing Mr. Baker’s concerns. Mr. Baker later learned from Jan Teague at HIM that Mr. Partridge specifically wanted HIM to run the Treasury Program at risk levels that substantially and materially exceeded SDCERA’s investment policy.”

Referring to SDCERA’s former CIO Lisa Needle, who resigned to work at Albourne Partners Ltd., the complaint continues: “On October 1, 2010, Mr. Partridge sent an email to Mr. Baker and Ms. Needle, acknowledging that the addition of any active strategy to the Treasury Program would exceed the total risk budget available. However, in spite of this acknowledgment, Mr. Partridge said he planned to add the Hoisington anyway.”

Disagreeing with the assertions of the San Diego Union-Tribune article, SDCERA states: “The complaint alleges that the Hoisington investment is over the risk budget. Hoisington is only one element of the treasury program as a whole. Additionally, SDCERA’s risk budget applies to the total investment class, not individual investments.” SDCERA states that the Hoisington investment represents one very narrow investment within the portfolio, totaling less than 2% of total assets.

While media reports say that Baker has been fired from SDCERA, the fund confirms that Baker is still employed. “Mr. Baker is still an employee at SDCERA. He has not been fired,” SDCERA tells aiCIO.

Partridge combats Baker’s assertions. “I am confident that we did everything in accordance with policy and have built a portfolio that has performed very well since I’ve been involved with the fund,” Partridge tells aiCIO. “It has been a team effort that involved their board, staff, a mix of outside consultants and myself…I don’t want to overstep my bounds in addressing the county’s personnel issues.”

In further response to Baker’s complaint, SDCERA issued a statement, saying: “SDCERA will establish through the Civil Service Commission process that Mr. Baker’s personnel claim has absolutely no merit. No one can be characterized as a ‘whistleblower’ on this issue because the issue was fully disclosed and well known before and after the investment was made.”