Hewitt EnnisKnupp Denied Outsourced CIO Role at Ventura, California Pension

(February 10, 2011) — Hewitt EnnisKnupp’s proposal to be the outsourced CIO for the Ventura County Employees’ Retirement Association (VCERA) has been rejected, with the plan’s board citing conflicts of interest and cost.

Hewitt EnnisKnupp had bid on the position following the recent departure of Ventura County Retirement Board’s chief investment officer, Tim Thonis. “The Ventura board voted ‘no’ because the price was too high, and they perceived a conflict,” Ventura Chairman Tracy Towner, a senior district attorney investigator, told aiCIO. “There seems to be an internal conflict that board members aren’t comfortable with when outsourcing to a consultant firm.”

It wasn’t for lack of trying on Hewitt EnnisKnupp’s part. According to a letter to Towner from Kevin Vandolder, principal at EnnisKnupp, obtained by aiCIO, the consultant firm had written: “Our proposed fee level for assistance in the daily operations of the investment program is $14,500 per month…It anticipated that we will spend an extra day per month in your offices to help facilitate this scope.” Furthermore, the letter explained that the Ventura Board and CFO would retain the fiduciary responsibility and authority for making all decisions with respect to plan matters.

The letter said that if hired, the consultant firm would provide general services to Ventura staff on a daily basis that included:

• Rebalancing assistance in finalizing worksheets and confirming the correct dollar amounts
• Re-visiting VCERA’s rebalancing overlay strategy and assisting in monitoring and decisions on implementation
• Leading the agenda planning and organization for Board meetings where investment topics are addressed
• Coordinating efforts with investment managers in facilitating cost efficient transitions
• Being available to participate in staff conference calls with VCERA’s service providers and staff as part of their own routine monitoring
• Reviewing final investment-related documents and contract amendments before staff finalizes and Board chair signs
• Working closely with external and internal counsel in the review of contracts and other legal obligations
• Attendance at all upcoming Board business meetings and being available to participate via conference call at the disability meetings
• Ramping up knowledge level of incoming RA and being a full resource during the transition

With the rejection of the proposal, however, the Ventura fund is left without a CIO. With regards to the departure of Tim Thonis, speculators blamed years of failed promises over pay raises, but Thonis told aiCIO that bad governance was to blame for his exit. Retirement board member Robert Hansen told a local newspaper that the reason for the departure was simply a “timing issue.” “It’s unfortunate,” Towner had said. “Here’s a guy who’s a gold mine who we’ve lost.”

Thonis’ departure and the inability of the fund to fill his position quickly portrays the struggles of pension funds around the country, which, in the midst of internal and external conflicts, struggle to retain top talent. “Tim retired because he didn’t like being under two different boards,” Towner told aiCIO. “While the county set his salary, it needed to be approved by the board of supervisors. So his departure wasn’t directly over salary – it was over governance.”

In a 6-3 decision, the board members of the Ventura Retirement Board denied writing legislation that would allow the retirement board to increase Thonis’ salary without the approval of the Board of Supervisors. By not increasing Thonis’ salary, the board aimed to save money, which was ineffective, according to Towner. “Thonis’ role was both CIO and chief administrative officer (CAO), a practice at most (small) public plans,” says Towner, noting that outsourcing of the CIO role can therefore often increase expense.

“I think all public funds struggle with finding and retaining qualified investment staff within the salary limits typically allowed within the public sector,” said Johanna Shick, spokesperson at the San Diego County Employees Retirement Association (SDCERA), whose CIO left in March 2009. Since then, SDCERA hired an internal CIO and portfolio strategist. “Because you’re competing with positions in the private sector — with different salary structures there — public funds struggle to find the right talent.”