San Diego terminates Salient contract

Salient Partners will no longer be SDCERA’s portfolio manager as of August 15 as the pension fund continues to transition towards an in-house CIO model.

The San Diego County Employees Retirement Association (SDCERA) will terminate its agreement with Salient Partners on August 15, bringing its portfolio management back in-house after having it outsourced for six years.

The decision, taken by SDCERA’s board, is one more step in the transition process the pension fund embarked upon last November when it decided it would be adopting an internal CIO model.

Since then, SDCERA brought on former AllianzGI senior executive Stephen Sexauer as its new chief investment officer (CIO).

“The Board’s decision today to terminate our agreement with Salient Partners reflects our philosophical shift to return to an in-house investment programme,” SDCERA’s board chair Skip Murphy said in a statement. “Since Steve Sexauer’s arrival [in May] as our CIO, Salient has worked in close collaboration with us to ensure the transition to an in-house programme is successful. We are confident that cooperation will continue until the transition is completed.”

According to a board meeting document, Salient is obligated to provide transition services for a period of up to 180 days from the termination date if SDCERA requests it.

During the meeting, Sexauer outlined the next steps the pension fund will take, which includes reviewing and revising investment policy and asset allocation. Investment staff will draft an investment policy statement ahead of the next board meeting, scheduled for August 20. The draft will serve as a working document, Sexauer said, with the aim of finalising it at the September 20 board meeting.

The debate for ending ties with Salient, which has been brewing for nearly a year, stemmed primarily from Salient’s risk parity strategy which leveraged four times the total of the risk parity fund, as well as the manager’s $8 million annual fee. During a September 2014 meeting the board voted to dial back the leverage to two times.

Last November, SDCERA’s board voted 8-1 in favour of adopting an internal CIO model and terminating the contract the pension fund had with Salient and its CIO Lee Partridge.

SDCERA outsourced its CIO function in September 2009, when it signed a contract with Integrity Capital, a firm Partridge founded after resigning as deputy CIO of the Teacher Retirement System of Texas. In November 2010, Integrity Capital was acquired by Houston-based Salient Partners.

Established in 1937, SDCERA provides services to 40,000 members. It administers retirement and associated benefits for eligible employees of the County of San Diego and other participating employers and is responsible for managing the retirement funds. As of March 31, 2015, its assets under management stood at $10.6 billion.