When the agency responsible for San Diego County’s $7.2 billion pension fund needed a new leader last year to oversee its investments, it did what’s expected: It advertised the job opening.

The retirement system had just taken a $2.2 billion hit to the fund that thousands of county retirees’ pension payments depend on, a loss that brought the resignation of the previous investment chief.

It got 130 applicants for the position, which paid a maximum $209,372. Among them was a man named Lee Partridge, then the deputy investment officer for the Teacher Retirement System of Texas.

Partridge had warned the San Diego County Employees Retirement Association that the salary was too low for him. But he impressed the association’s board. So much so that they found an unusual way to hire him.

Instead of keeping the prominent position in-house, where it’d be subject to county salary limits, the association hired Partridge as a private consultant and agreed to pay him as much as $4.5 million over three years — millions more than he would’ve made as a county employee.

The association’s board didn’t advertise again to see whether other investors might want that outside role and be even more impressive or cheaper. It simply went with Partridge.

“I wasn’t trying to avoid competition or come in through the back door,” Partridge said Wednesday. “Unfortunately, there’s some lingering perception that that’s how it unfolded.”

The board’s decision did come with a hitch: Partridge can’t oversee the retirement system’s investment employees.

Now, six months later, Partridge has recommended a way to fix that hitch. He’s asking the retirement system to redefine the way it invests its money — and to turn the county employees who supervise the investing over to him.

Partridge has proposed that the retirement board eliminate the organization’s internal 10-person investment team and outsource it to his private company, Integrity Capital LLC. He’ll also hire seven to nine more financial staffers in addition to hiring the county’s current ones. And the association would pay for it all: $10.6 million annually — plus incentives if Partridge outperforms the market. The annual fee would decline if Partridge recruits other pension funds as clients.

All that from a Texas man who got his foot in the county’s door by applying for a job whose salary was too low for him.

Partridge’s strategy for investing the county’s money would boost its annual money management expenses to $100 million. Brian White, the retirement association’s CEO, points out that outsourcing would cut that by $24 million. But those costs would only be that high because of the way Partridge wants to invest the county’s money in the first place.

Compared to the status quo, the outsourcing initiative would save $1.3 million. And it would remove salary limits from the county employees who currently have them, while shifting them and their jobs — monitoring investments, managing risk — to a private company.

Partridge said the proposal will allow him to pay those employees more and recruit talented investment managers who wouldn’t otherwise want to work for a public agency paying a lower salary than they could earn elsewhere. That, he said, will allow him to save money ending inefficient practices for the pension fund, which relies heavily on external consultants to actually invest its money.

The proposal has raised two concerns from retirement board members:

• Supervisor Dianne Jacob, a pension board member, has questioned whether Partridge had a conflict-of-interest by proposing that his company be the beneficiary of the outsourcing proposal. White acknowledged at a recent board meeting that a “perceived conflict-of-interest” may exist. Two association attorneys said then they’d need to undertake a careful legal review. White wouldn’t discuss the review’s findings Wednesday and said they’d be aired at a Thursday morning meeting.

• Treasurer-Tax Collector Dan McAllister, a pension board member, questioned the association outsourcing its entire investment team without a competitive bid to someone who was initially hired without a competitive bid.

“Is it appropriate for the person who stands to be the big beneficiary to be crafting his or her own deal?” he asked. “If we do anything in this vein, it should be through a fully transparent process that allows us to test the marketplace.”

The board is now seeking to address that concern. It will consider whether to approve a limited bidding process Thursday that would invite bids from chosen companies. “Probably less than 10” firms will get that invite, including Partridge, White said in an interview. White said he believed Partridge was still the top option but allowed the possibility that another firm could be chosen.

“We’ll get them in here and make a proposal and compare them to Lee’s,” White said. “At a minimum, it’ll validate that Integrity is the best. And if not, we’ll select someone else.”

Jacob said in a statement that her concerns remain even though the proposal has changed.

“I still have more questions than answers,” Jacob said. “This proposal is unprecedented. We need to exercise the utmost due diligence as we scrutinize it. I’m particularly interested in a thorough legal review of this proposal.”

The county Board of Supervisors would have to approve the elimination of the association’s investment staff jobs. But it’s not clear whether the supervisors could halt the retirement board’s outsourcing effort — or whether eliminating the positions would simply be a procedural step.

“Certainly myself and the Board of Supervisors will be very interested and will want to know all the risks associated with this whether we have any say so or not,” said Walt Ekard, the county’s top administrator. “It’s an important fund. Anything they do we have a keen interest in.”

Please contact Rob Davis directly at rob.davis@voiceofsandiego.org and follow him on Twitter: twitter.com/robwdavis.

Dagny Salas

Dagny Salas was web editor at Voice of San Diego from 2010 to 2013. She was an investigative fellow at VOSD from 2009 to 2010.

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