Implosion of Fund Is Felt in San Diego

San Diego County’s government is accustomed to accolades for earning outsized returns on its employees’ retirement money, while the city of San Diego has been ridiculed for bungling management of its pension fund.

Now, after betting on a hedge fund that subsequently suffered a big loss, the county is under fire for what some say was a surprisingly risky investment strategy.

The county invested $175 million last year with Amaranth Advisors, a Greenwich, Conn., fund that told investors this week that it had lost 35% of its assets and was liquidating energy holdings after the recent drop in natural gas prices.

The loss to the county retirement fund -- and the 33,000 workers it represents -- is still unclear, but the sour bet is raising questions about the county’s unusually heavy exposure to hedge funds, which are high-risk, secretive and largely unregulated. The county says it has put $1.5 billion in about 10 hedge funds, about one-fifth of its total assets of $7.5 billion.

County Treasurer-Tax Collector Dan McAllister said Wednesday that hedge funds might be “too esoteric” and that he would urge reconsideration of the strategy.

“These hedge funds have to answer to no one,” said McAllister, who serves on the nine-member pension board. “We are a public fund. We should be about full disclosure.”

Brian White, chief executive of the San Diego County Retirement Assn., defended the strategy, pointing to sizzling gains in recent years. The pension fund earned 15.6% in the fiscal year ended June 30, 14.6% the previous year and 22.4% the year before.

The county estimates it lost $45 million on the Amaranth investment, though White emphasized that figure is subject to substantial revision. Excluding that loss, the fund has gained $425 million this year, he said.

“Any type of loss like this causes great concern but there’s no reason for alarm,” White said. “We’ve had a very successful investment program. This is a concern but it’s certainly not a showstopper.”