Second Thoughts Emerge on SDCERA Outsourcing Deal

April 2, 2010 ( – The San Diego County pension system may not be outsourcing its investment management function, after all.

At a meeting of the retirement board yesterday, attorneys said that hiring the consultant that had been hired as the pension system’s top investment guru (Lee Partridge) would violate the law if he also was contracted to lead internal management of the pensions (see San Diego County Selects Integrity Capital as Outsourced CIO).

Two Options

According to the San Diego Union-Tribune, board directors decided to move forward with two options: continue their outsourcing bid despite excluding Partridge and re-evaluating the internal management structure.      

The San Diego County Employees Retirement Association board, which oversees pensions for about 37,000 members, had overwhelmingly approved the outsourcing model just two weeks ago (see SDCERA Votes to Outsource Investment Oversight).      

The Union-Tribune report noted that board member and county Supervisor Dianne Jacob asked for an evaluation of the system’s staffing needs so an internal model could be considered along with bids from outside firms.  “With our current investment staff, we’ve done pretty well,” Jacob said, according to the report. “A billion dollars in returns over the last eight months … I think the evidence speaks for itself.”      

Bidder Interest?

However, some board directors questioned the level of bidder interest because the county already has outsourced its top investment position.  The Union-Tribune noted that board member Loretta Morris said another option is to fire Partridge, who helped craft the outsourcing proposal.

According to the report, Partridge received a retainer of almost $350,000, initial advisory fees of $535,500 and incentives that could double that (see San Diego County Approves $1.4M Comp Plan for Outside Investment Consultant).  Under the original proposal, Partridge’s firm, Integrity Capital, would have absorbed the county’s existing eight-member investment staff and charged a fee to oversee the county’s $7.3 billion portfolio.      

Questions about a potential conflict of interest prompted the board to open the bidding to other companies. Board members said the outsourcing model would help them recruit investment specialists who have been deterred by salary caps set by county ordinance.