If you’ve read my stuff with any kind of regularity over the past couple of years, you know I used to often muse about the oddity that county Supervisor Dianne Jacob sits on the county pension system’s board of trustees. It wasn’t her, in particular, that got to me. It was the fact that any supervisor would be allowed to sit on both the board that oversees the sponsor of a pension plan and the one that oversees that plan specifically.
It’s an obvious conflict, just like the ones that her colleagues have when they vote on health benefits and yearly cost of living raises for pensions that they will eventually collect. For county supervisors, not only are they members of the pension fund but they have a specific interest in making sure the county’s finances are solid. That’s not always going to be a parallel interest to the members of the pension system who may need to send the county a bill or two or even sue the government to ensure the system has the assets it needs to pay for its obligations.
Last year, the issue came to a head when her colleagues on the pension board tried to have Jacob silenced because of a laudable attempt she was making to relieve the county of long-term liability with regard to health care benefits for retirees. They argued that she was conflicted. Never mind that if she was conflicted then, she was always conflicted. You can’t just say someone is conflicted when what they do upsets you.
Anyway, we’re not in an isolated desert with this discussion. A reader directed my attention to a story from last Thursday that came out of Marin County. Turns out a county supervisor up there decided to leave his position on the board that oversees that government’s employee pension plan. He apparently decided that having a dual personality and potential conflict posed a risk in light of the ongoing legal troubles some former members of the city of San Diego’s employee pension system.
Seven of the Marin pension board’s nine members are beneficiaries of the pension, but (County Supervisor Charles) McGlashan is the only one to step down following the San Diego district attorney’s charges against former pension board members who made decisions as trustees that benefited them as retirees.
If the ongoing court odyssey in question — the district attorney’s prosecution of six former members of the city’s pension board — is sending a message to trustees as far away as Marin, it is still very interesting that the county’s leaders, only a few miles away, have ignored it.
On another note, I hear that the county’s pension board will, on Thursday, provide an update of sorts on the success of its investments into hedge funds. As you remember, fully 20 percent of the county’s pension assets are managed by hedge funds. The financial world right now is writhing with painful corrections, so this is a timely discussion for those who might want to listen in.
There’s plenty for them to talk about. You might remember one group of intelligent hedge fund fellows from the firm AQR who visited the county pension trustees over the summer. It was August and the financial markets were trying to understand the first wave of credit troubles that have come to define the last year of the economy. In July 2007, AQR lost a reported 13 percent of its assets — just in one month. But rather than worry the county’s trustees, the firm advised them that they had a special opportunity and they should invest more to take advantage of it.
It was a plea that at least one of the trustees responded to.
“What we’re witnessing is another historical event for great opportunistic investors,” said trustee Laura DeMarco.
From what I understand, the county pension board held off on the chance to essentially double down on its bet. So how has AQR done? Not so well according to this piece
The assets of AQR’s Absolute Return fund dropped to $2.9 billion last month from $4 billion in the fourth quarter, said the people, who declined to be identified because the Greenwich, Connecticut-based firm doesn’t publicly disclose the data. AQR’s smaller Asset Allocation fund lost at least 16 percent of value.
I love that. It’s called the “Absolute Return Fund.” I’d hate to see what happened to their “We’re-Going-to-Eat-It Fund.”