Dallas officials are calling for more oversight of the city’s severely underfunded public safety pension fund investment portfolio. But the funds executives say another independent review of its investments wouldn’t “add value.”
Dory Wiley, president and CEO of Commerce Street Investment Management, helped to review the public safety fund investments.
“They’ve been saddled with that problem for a while,” Wiley said during Thursday’s Ad Hoc Committee on Pensions meeting. “The performance of those legacy assets have drug them down for many years, they’ll continue to drag them down going forward…until they can get rid of them.”
Wiley’s report was largely the same as the initial review briefed to the committee in June. After it was finished, the Dallas Police and Fire Pension Fund’s executives voiced their disagreement with the report — and some of its recommendations.
“We worked with [Wiley] and his crew, and through some meetings over the summer we provided quite a bit of information to them,” Ryan Wagner, the fund’s chief investment officer, said during the meeting. “A lot of the information was omitted from the final report, why that occurred, I’m not sure.”
Wagner said that information included outside reports on how the portfolio is operated, investment policies and history on the plan.
“I think that would give the committee a much better understanding of how we actually operate the plan,” Wagner said. “I think there were a lot of questions asked and [Commerce Street] did not answer, for whatever reason.”
At the recommendation for a periodic independent review of the fund’s portfolio, Kelly Gottschalk, the system’s executive director, told the council it wasn’t necessary.
“First of all, they’re not fiduciaries of the plan,” Gottschalk said. “We’ve got a very sophisticated board of 11 people, a lot of them have investment background, we have a very sophisticated investment advisory committee.”
“We’ve got an investment consultant, we have a staff working on the portfolio every day, I’m not sure how adding another person in there is going to provide anything more than is available,” Gottschalk continued.
The pushback on extra oversight sparked the tone for the rest of the meeting. Council members questioned the hesitation for more eyes on the portfolio – and one accused the fund’s executives of defensive body language.
'When mama writes a check'
District 13 Council Member Gay Donnell Wills highlighted the need to focus on making the fund perform the best it can — and said independent checks were needed.
“Through the years the city of Dallas has not done a very good job of oversight of these funds,” Willis said during the meeting. “We don’t even look into these funds, which we invest heavily into, without even the same scrutiny we give our own departments.”
Willis said the first step was getting an independent consultant.
“If we had someone in this role years ago…we might not be sitting here today having this discussion because there would have been wires tripped that would have prevented this,” Willis said.
It was risky real estate investments that nearly caused the fund to collapse — and prompted the state required deadline to submit a plan to fund the system again.
Wiley told the council that there was a large disconnect between the city and fund’s executives — and said a prime example came out of a visit with a pension board member who had served for 15 years.
“He said, not once in the 15 years has he had a conversation with the city about the fund, not once,” Wiley said. “As a city appointee.”
Wiley also said the fund’s previous auditor “fired” the public safety pension system as a client — and said it was a “red flag.” Gottschalk said she had seen no evidence that the fund was “fired” but said there was a change in investment firm in the early 2000s — before she was working with the system.
District 9 Council Member Paula Blackmon said the report needed to be briefed to the full council since the city is ultimately on the hook for paying to make up the billions in unfunded liabilities.
“As I’ve said, when mama writes a check, mama gets to ask the questions,” Blackmon said. “And we’re going to be writing big checks.”
Body language and a ‘set up'?
Zarin Gracey, who represents council District 3, had a difference stance on Gottschalk and Wanger’s rebuttals during the meeting.
“You two, since you’ve sat down, your eyebrows have been in defense mode, and that’s bothersome,” Gracey said. “Because my understand is neither one of you were a part of this fund when everything happened.”
When Gottschalk interrupted to ask to responded to Gracey’s comment — he told her no.
“Your body language in defense to these recommendations, when the objective is to try and fix something that none of us had a part of, is confusing to me,” Gracey said. “You ought to want as much help as you can [get].”
Gracey said it was fine for the executives to be defensive — but the end goal is to fix the fund.
“So I am encouraging you all, mind the body language,” Gracey said. “You are defending this as if you did it, and that is concerning.”
Gracey said he also wanted more governance for the fund. Gracey managed the city’s investment fun prior to becoming a council member.
Gottschalk acknowledge the request for more frequent investment check-ins — but said the fund publishes its investment documents on its website.
“They’ve been on the website for more than ten years…we’re happy to send them to you if its easier than getting them off our website,” Gottschalk said.
Gottschalk said as far of governance, when the bad investments were made there were Dallas council members sitting on the pension fund’s board and said “often times they didn’t come to the meetings.”
“We don’t mean to come off defensive,” Gottschalk said. “We don’t feel like this has been a fair process, I mean we were told we were only going to be answering questions."
Gottschalk said her team wasn’t given the chance to respond to statements made by Wiley, and that’s where the defensiveness could come from.
“We would like to have a fair review of this and I feel like this is more like a set up,” Gottschalk said.
‘Finish this real quick’
After the back and forth between council members and pension executives, Mayor Pro Tem Tennell Atkins, who chairs the board, stopped the questions by the committee.
“If it got out of hand, we should blame me, as the chair,” Atkins said. “But one thing I want to tell you…I was a trustee on the board back in [2013, 2014] and there were three council members on that board and we were stacked, we were outvoted.”
Atkins told the committee that this shouldn’t be a fight between the pension and the city.
“It’s a fight for the taxpayers…that’s what we’re here for,” Atkins said. “That’s our responsibility to fix the problem.”
Atkins said this meeting was the first time he had heard of a communication breakdown between the pension staff and the city’s staff. Interim City Manager Kimberly Tolbert told the committee that she had been in conversations with pension staff members.
The intense meeting comes after a back and forth battle over who has the final say over a plan to fix the pension — the fund’s executives or the city.
The plan is due to state regulators in early November.
Got a tip? Email Nathan Collins at ncollins@kera.org. You can follow Nathan on Twitter @nathannotforyou.
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