ERS fires The state Employees' Retirement System, seeking to shore up its pension fund's performance after two straight years of losses, has terminated San Francisco-based 3Bridge Capital LLC from its group of fund managers.
3Bridge Capital
Poor performance is cited
in the termination of the
San Francisco-based fund manager
By Dave Segal
dsegal@starbulletin.com3Bridge, which had been on ERS' watch list since January 2000 after consistently lagging the performance of its peer group, was terminated by a 7-1 vote of the pension fund's trustees.
"Basically, we were not satisfied with 3Bridge's performance," said Colbert Matsumoto, one of the eight trustees on the board. "When a manager is put on the watch list, there are certain expectations laid out for them in terms of performance and other issues associated with their performance."
3Bridge portfolio managers could not be reached for comment.
Earlier in the week, ERS reported that its pension plan suffered investment losses of about $419 million, or 5.08 percent, for the fiscal year that ended June 30.
3Bridge, which in February had its assets halved by the trustees, ended the just-completed quarter as the worst performer among ERS' four U.S. large-cap value managers with a loss of 11.04 percent, or $18.1 million. That ranked the manager 71st among its peers.
San Francisco-based Callan Associates, which advises the trustees, had been recommending that the board terminate the manager for not meeting performance criteria.
3Bridge declined 20.38 percent over the 2002 fiscal year to rank 91st among its peers and trailed its benchmark, the broad-based Standard & Poor's 500 index, which lost 17.99 percent. At the end of the fiscal fourth quarter, 3Bridge managed $145.7 million, representing 1.82 percent of the $8 billion pension fund's total assets.
The fund manager's long-term performance was even worse compared with its peers, ranking 99th over the past three- and five-year periods. It posted an annual average loss of 14.11 percent for the past three years and an annual average loss of 0.08 percent over the past five years, which included about half of the bull market.
"There were some issues related to whether 3Bridge had been measured against the right benchmark," Matsumoto said. "There was an issue of whether they were too much growth for a value-fund manager and whether their style designation and the benchmark of which to measure them should be growth as opposed to a value-fund manager. They also had gone through a transition and were a breakoff from another firm."
Overall, Matsumoto said ERS' pension fund has been living up to its legislative mandate of an 8 percent annual return despite the two years of losses. In the 2001 fiscal year, the pension fund lost 6.68 percent after having posted gains in 33 of the previous 34 years.
"On a long-term basis, the fund has been more successful in achieving that 8 percent rate of return even though our recent performance hasn't been as good," Matsumoto said. "Over a 10-year period, our average annual rate of return has been 8.26 percent. And, when you look at it on a 20-year basis, it has been 10.48 percent. So the long-term indication is that the strategy is working in spite of the fact we've had some bad years."