Local pension focus urged

Dixon asks officials if more of city's reserve can be directed to area investment companies

January 15, 2007|By John Fritze | John Fritze,SUN REPORTER

Incoming Baltimore Mayor Sheila Dixon has asked city retirement officials to examine whether they can invest more of the city's large pension reserve in minority-owned and local companies - reopening a controversy stirred in the early years of Mayor Martin O'Malley's administration.

Dixon, who will be sworn in as mayor this week after O'Malley becomes governor, has questioned whether two separate pension systems, one covering police and firefighters and the other covering nonuniformed city employees, could direct a larger portion of the funds to local investment firms, rather than using out-of-town companies.

O'Malley demanded similar changes in 2001 and blocked pension system requests that came before the Board of Estimates - the body that holds the city's purse strings - until pension officials complied. Pension officials grudgingly changed their guidelines to reflect their interest in at least considering local management companies. But in practice little changed.

O'Malley and Dixon favor using local firms to invest pension money to boost the local economy, but pension trustees are reluctant to embrace the strategy. Pension officials maintain that their job is to get the best return on the pension money regardless of where the investment firm is located or whether it is run by a minority.

"As a trustee we have a fiduciary responsibility to hire the best managers out there," said city Comptroller Joan M. Pratt, who sits on the Board of Estimates and the boards of the Employees' Retirement System and the Fire and Police Retirement System. "We invest locally, nationally and globally."

Renewed discussions about the practice came after Wednesday's meeting of the Board of Estimates. At Dixon's behest, the board delayed two investment agreements with out-of-town firms, one with Pennsylvania-based Turner Investment Partners and the other with Chicago Equity Partners. The agreements would allow the companies to manage $46 million each in pension assets.

During the meeting that took place before the official Board of Estimates meeting, Dixon said that Thomas B. Corey, chief of the city's minority business office, planned to meet Thursday with Roselyn H. Spencer, executive director of the Employees' Retirement System, "regarding those types of contracts" and asked that the items be deferred.

"It has to do with MBE-WBE as well as local companies," Dixon said, using the common acronym in city government for minority- and women-owned businesses.

At that meeting, Pratt expressed hesitation about delaying a vote on the agreements. "Timing is everything," she said.

Both agreements will be back up for consideration by the Board of Estimates this week.

"The board of trustees are the proper authority for determining where and how the investments are made," said Stephan G. Fugate, chairman of the fire and police retirement board. "We go for the most bang for the buck."

Dixon could not be reached for comment.

The employees' retirement system has about $1.3 billion in assets, 8,688 beneficiaries receiving a pension and more than 10,000 employees who will become eligible to receive retirement. The fire and police system has $2.3 billion in assets and has 5,716 recipients and 4,627 active members.

"First and foremost, the board has a responsibility as fiduciaries to do what's in the best interests of the beneficiaries of the fund," said Spencer, with the employees' fund. "We'll always hire the best manager to mange the assets of funds."

Both funds have used local firms in the past, including Legg Mason and T. Rowe Price.

Pension boards have historically relied on consultants to recommend a list of investment firms, which are then narrowed down by board members. By turning to local firms, pension officials can wind up in business with politically connected money managers. And that can lead to the appearance of conflicts of interest.

O'Malley's confrontation with pension officials was instigated by a politically connected fund manager. Michael G. Bronfein, who had contributed to O'Malley's campaign committee, was a managing partner of Sterling Venture Partners, which lost a bid for an Employees' Retirement System contract. O'Malley denied that he was acting on behalf of Bronfein when he made the request.

Dixon ran into trouble last year when, at a City Council committee hearing, she asked Comcast, the city's cable provider, why the company wasn't spending more money hiring minority subcontractors. The Sun reported that one of those potential subcontractors was a company that employed her sister, Janice Dixon.

The Maryland state prosecutor's office indicted the owner of that company, Union Technologies, last month. The Baltimore Ethics Board determined there is no need to pursue an investigation into the allegations that Dixon violated the city's ethics law in the matter.

john.fritze@baltsun.com

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