Orange County’s $5.9 billion pension fund may be in the market for a new manager of its $500 million worth of buildings.
The Orange County Employees Retirement System’s contract with Cleveland-based Townsend Group ends in April.
The fund plans to take applications from several consultant candidates to oversee its real estate investments, including Townsend, according to Thomas Flanigan, chief investment officer with the retirement system.
Flanigan said the fund is going through a normal application process and doesn’t have specific plans to drop Townsend.
Still, the move has some industry sources speculating a change is in the works.
The pension fund also is taking applications for its general consultancy position, now held by San Francisco’s Callan Associates Inc., which advises the fund on other investments. Callan’s contract length is indefinite, sources said.
One option for the fund: have one consultant handle all its investments, according to industry newsletter Real Estate Alert.
The pension fund earmarks as much as 10% of its holdings for real estate, Flanigan said. It currently has a little less than 10% of funds in real estate, he said.
The fund’s real estate investments include commercial buildings, apartments and shopping malls. The real estate holdings are spread across the country, said John Moorlach, county treasurer-tax collector, who is on the fund’s board.
The pension fund owns just one building in OC: its headquarters at 2223 Wellington Ave. in Santa Ana, Moorlach said.
Last year the pension fund recorded an 11.4% gain in overall investments, according to its annual report. The S & P; 500 index was up about 8% in 2004.
The fund’s real estate assets were up 10.6% last year, with its international component rising 17.4%. Moorlach said the fund previously invested in Europe, but has scaled back there.
He said the fund’s assets, real estate or otherwise, have performed well historically. The big issue for the pension fund: Its liabilities exceed its assets, he said.
Tinkering with asset managers is besides the point, he said.
“It’s not an investment issue, it’s a benefit issue,” Moorlach said, referring to a benefits package increase approved last year by the OC Board of Supervisors.
Earlier this month, Moorlach and James Doti, president of Chapman University in Orange, warned about the pension fund’s liabilities in an opinion piece published in the Orange County Register.
Moorlach and Doti calculated the fund’s assets at $5.2 billion and its liabilities at $7.5 billion, meaning the fund faces a $2.3 billion deficit. The fund’s chief investment officer said the fund’s assets are closer to $5.9 billion.
OC isn’t alone in its pension woes. Public and private pension funds across the country are struggling to meet obligations stemming from worker benefits.
San Diego’s well-publicized pension fund mess is worse than OC’s, observers said. The city has a greater deficit as a percentage of total assets and liabilities than OC’s pension fund.
Moorlach and Doti suggest several ways to lower OC’s shortfall: require any new retroactive benefit to be fully funded before it’s approved; raise the age at which workers’ benefits kick in; and put a cap on cost-of-living adjustments.
Unions have suggested merging the county’s pension plan into the state’s plan.
The county is set to finish a study on the liability issue in spring.
