Thursday, February 17, 2011 – 12:40 p.m.
Last Modified: February 20, 2011 – 11:35 a.m.
The government pension fund for the County of San Bernardino, once-renowned for it’s long-term investment savvy, has taken a hard fall over the past few years.
A fall, the fund is still reeling from to this day.
A fall, now affecting county taxpayers and employees.
The San Bernardino County Employees Retirement Association (SBCERA) currently operates without a Chief Executive Officer and a Chief Investment Officer.
Two positions vacant since the fourth quarter of last year, and both previously occupied by former CEO/CIO Timothy Barrett, who abruptly left the pension fund in November for a job at Eastman Kodak.
Barrett’s exit was reportedly over compensation.
A recruitment to find replacements is also reportedly underway, while county Treasurer Larry Walker currently acts in the temporary position of managing trustee.
SBCERA, once ranked in the top-tier of public pension funds of similar size, is now ranked in the bottom ten percent of all public pension funds.
A symptom of a combined 2008 and 2009 loss of almost $2 billion.
For a fund that prided itself on innovative investment strategies with a primary goal of safety and preservation of capital, the fund morphed into what some would describe as a hedge fund-type investment platform, led by an expansion into the area of derivative investing.
As of June 30, 2010, approximately 39% of the pension funds total assets was invested in real estate, infrastructure, timber, absolute return and commodities.
In 2010, the number of asset management firms handling SBCERA funds has exploded to some 76 companies, who were paid more than $66 million in expenses.
The asset managers are monitored by four consulting firms, who were paid more than $2 million last year.
Now it would seem the very same investment strategy has hindered the funds performance and made it more difficult to achieve a required 9% annual investment return needed to keep pace with mandated actuarial pension obligations, a general subsidy, and operating expenses.
Keep in mind that SBCERA does not bear any health insurance obligations, which currently plague many public pension funds across the country. It should also be noted that SBCERA general members never opted for any enhanced retirement formula. Only safety members negotiated for an increased pension formula in 2003.
The safety members, at the time, agreed to pay an additional 5% of their earnable compensation into the pension fund. Something they still continue to do today.
This would make the argument that the woes faced by SBCERA rest entirely with investment performance.
Here is the pension funds past performance. The numbers speak for volumes.
Deviation Total Total From Funding Year Assets Return Target Ratio 2010 $ 5,094,000,000 7.91% ( 1.09%) 85.52% 2009 $ 4,687,000,000 (24.00%) (32.00%) 91.02% 2008 $ 6,255,000,000 ( 2.52%) (11.52%) 93.62% 2007 $ 6,519,000,000 19.70% 10.70% 93.10% 2006 $ 5,462,000,000 11.45% 2.45% 92.02% 2005 $ 4,741,000,000 9.43% 0.43% 91.08% 2004 $ 4,502,000,000 17.16% 8.16% 93.61% 2003 $ 3,360,000,000 0.80% ( 8.20%) 87.34% 2002 $ 3,306,000,000 ( 4.33%) (13.33%) 99.07% 2001 $ 3,456,000,000 ( 3.24%) (12.24%) 111.47% Note: On 06/30/04 the County of San Bernardino contributed $506 million in proceeds from the sale of pension obligation bonds. Source: SBCERA CAFR 2009/10
SBCERA fiscal years with cumulative losses easily dwarf those years which reflect gains, while the pension fund’s total assets as of June 30, 2010 sit $1.425 billion below their June 30, 2007 high.
It’s safe to say that prior to the latest market collapse SBCERA was treading water at best.
The pension funds long-term performance is causing ripples within the political waters of San Bernardino County government, with pressuring building on the county general fund, which has to shoulder the burden of the problems at SBCERA.
Scrutiny and criticism from county supervisors and county Chief Executive Officer Greg Devereaux has been growing in tempo over the past year, with one county supervisor, Gary Ovitt, stepping in as a trustee.
The Board of Supervisors appear to be gearing up to deal with a retirement board that has had a problem shaking its love affair with travel junkets and other concerns not directly related to pension fund oversight.
While the board trustees are lay people, when it comes to sophisticated investments strategies, it is still their job to hold professional staff accountable.
As of June 30, 2010, SBCERA recorded an unfunded liability of more than $1 billion projected over a twenty year period.