Last March, when the nine board members of the San Diego County Employees Retirement Association found themselves searching for their fifth CIO in 15 years, it was time to face facts: The largest of 20 county pension funds in California, with assets of $6.5 billion, had to find a way to keep the next pension chief around for a while.
“Clearly, chief investment officer is not a career position in our fund,” explains board chairman Doug Rose. “Given the salary, if you are doing spectacularly well, you are going to move on to bigger and better things.” And, as outgoing CIO David Deutsch proved, seeing $2.5 billion in assets evaporate on your watch can also trigger a move.
A nationwide search launched after Deutsch’s departure in March brought in 130 résumés. The board narrowed the field to three finalists, all public pension executives. Lee Partridge, deputy CIO at the Teacher Retirement System of Texas, emerged as the top pick.
“Most of our other candidates were being measured by Lee,” says SDCERA CEO Brian White. The trouble was, Partridge was making between $360,000 and $380,000, depending on his performance bonus, in Texas, and the San Diego salary was capped at $330,000 with full benefits. To snag the best talent, something had to change.
White considered the outsourced-CIO model, but at a cost of 0.5 to 1.5 percent of the fund’s total assets, it was too expensive. He also reviewed the endowment-style investment model offered by firms like Makena Capital Management in Menlo Park, California, and Morgan Creek Capital Management in Chapel Hill, North Carolina, where the cost was a more moderate 0.2 to 0.5 percent. But Partridge had an idea that, in the end, landed him the job.
With eight years under his belt as a pension executive at TRS, Partridge had been mulling a version of his own outsourcing. His earlier experience in credit unions led to the concept of bundling investment management services to reduce group costs. “The marginal effort it takes to run two funds as opposed to one fund is minimal,” he says. As a consultant, Partridge stands to earn as much as $1.4 million. He will start with a base salary of 85 basis points, or about $535,000, and could make an additional 0.85 percent if he meets the 8.25 percent return expectation set by SDCERA.
There are five or six firms that outsource endowment management, but it’s still very new. Partridge is banking on his idea taking off. If it doesn’t, he’s still way ahead — and maybe SDCERA’s revolving-door problems will be over.
