State retirement fund fires Goldman Sachs, other fund manager

By Cy Ryan

Wednesday, March 24, 2010 | 12:26 p.m.

The Nevada Public Employees Retirement System today fired Goldman Sachs and Quantitative Management Associates as portfolio managers.

Goldman Sachs managed $600 million and Quantitative Management handled $500 million of the system's $22.5 billion in holdings.

Calling it a "very rare" occurrence, System Investment Officer Ken Lambert said the firings were due to under performance in return on investment. Thirty firms have been fired in the last 30 years by the board, Lambert said.

The $1.1 billion will be temporarily managed by Mellon Capital until the board decides next month who should manage the investment, said Lambert.

Lambert said Goldman Sachs had underperformed the system's index by 1.2 percent, or $15 million, over the last two and a half years. He also cited "mass turnover" among the firm's executives.

Stephanie M. Ivy, vice president of asset management at Goldman Sachs, told the board: "We have let you down." But, she added, "I think we can recover."

Ivy acknowledged that there has been a lot of turnover. She has been managing the fund "for only a couple of months," but said there are more than 70 employees working on investing the Nevada retirement money.

Lambert, however, argued it was hard to justify keeping Goldman Sachs based on its performance.

The state's retirement system has 18 managers handling its money. All others outperformed their target by $20 million during the same period.

Lambert said Quantitative Management has underperformed the target by 4.1 percent in each of the last two years.

"The hole is too deep. I don't see them digging out," he said. "This is one case where we cut our losses and move on."

John Van Belle, managing director of Quantitative Management, said the firm performed above average in the five years before the retirement system hired it. The strategy has been to buy a cheap stock with good earnings but that has not worked out in the last two years, he said.

The retirement system, that covers government workers in Nevada, has 150,000 members with 105,000 active and 45,000 drawing pensions.

So far this fiscal year, the return on investment is up 18 percent and the system has earned $3.8 billion, said Lambert.

In February the Pew Center on the States issued a report saying there are "serious concerns" with Nevada's management of its pension fund. Its liabilities total more than $30 billion with a $7.2 billion shortfall.

Dana Bilyeu, executive director of the system, said fund is not going broke.

The Pew study combined the pension and the health care system in its report, she said. "We have a mechanism in place to pay this off and there isn't one on the health care side. You can't combine these two liabilities and say Nevada is not doing a good job."

"Where you have trouble," she said, "is when your plan sponsors, your employers and your members don't make contributions into the plan appropriately and that has never happened in Nevada."