San Diego Hires Outside CIO To Stop Revolving Door

After losing four different chief investment officers in the past 12 years, the San Diego County Employees Retirement Association has decided to take the highly unusual step of outsourcing the position. The pension fund has relationships with more than 30 private equity sponsors, and managers that have gotten multiple pledges from the limited partner include Apex Partners, Oak Investment Partners, Oakhill Capital Management, Paul Capital Partners and TA Associates. San Diego County’s alternative investment program has a target allocation of 5 percent to private equity, but as of June 30, 2008, the actual allocation stood at 4.2 percent.

The county has contracted with Integrity Capital, led by Lee Partridge, to serve as the limited partner’s portfolio strategist. Partridge will himself perform all the responsibilities of an internal CIO, with the exception of supervising investment staff. Those responsibilities include asset allocation, manager selection and portfolio construction. He will report to CEO Brian White and the board, which will retain ultimate control of investment and allocation decisions.

San Diego County hopes that by outsourcing the CIO responsibilities it can “engage top-level investment talent, gain exposure to more investment strategies and instill stability in a position that has had four different CIOs [in] the past 12 years,” according to a prepared statement.

Partridge most recently served as deputy CIO for the Teacher Retirement System of Texas, where he managed the core-plus fixed income portfolio. He also helped overhaul the pension system’s asset allocation, leading to new mixes of active and passive strategies, and of public and private market exposures. Last month, Partridge left to form Integrity Capital, a consulting practice specializing in managing institutional investment portfolios.

San Diego County’s $6 billion pension fund will pay Partridge an annual base management fee of 0.85 basis points of assets under management, or about $535,000 based on current assets. It’s a 39-month contract beginning Oct. 1, with two potential two-year extensions, according to Johanna Shick, San Diego spokesperson.

Partridge could earn a performance fee of up to 0.85 basis points of assets under management, if certain conditions are met, including meeting or surpassing the fund’s assumed rate of return of 8.25 percent.