Latest setback for Dallas’ Police and Fire Pension could cost taxpayers

Dallas fire & police

If you know one of the board members of the Dallas Police and Fire Pension Fund or the still-new administration team for the pension fund, you might send them a note of thanks today – along with a couple of Advil.

Much depends on whether the pension fund’s new managers can fix years of abuse under the former administrator Richard Tettamant’s regime. That’s why it’s so critical they focus on looking ahead, not being constantly beset by the past.

Yet the past will be front and center at today’s pension board meeting. The latest setback is news that one of the real-estate advisers to the Tettamant team – CDK Realty Advisors — has filed suit for more than $139,000 in fees it claims it is still owed. Foiled against the problems the real-estate investments led to, this suit seems somewhat baffling to me.

You see, every time that the path seems clear for pension fund leadership to focus on strategies to pull this fund out of the ditch, they find themselves back in the mire, wrestling with issues stemming from Tettamant’s tenure.

And in case you’ve been on a very long news-free vacation, here’s why this matters a lot: This pension fund has a staggering unfunded liabilities sheet and someone’s going to have to pay. City Hall didn’t cause this problem, but it may eventually face a difficult choice regarding who has to bail out this fund. How to do right by hard-working Dallas police and fire employees and how that might affect other needed city improvements. And all of that could wind up costing you and me, Dallas taxpayers.

In the lawsuit, CDK doesn’t see it that way at all. The advising group denies any part in the problems the pension fund ran into. The lawsuit maintains that its 12-year partnership with the fund resulted only in “a relationship that was profitable for the system.” CDK also notes that it had no involvement in the Museum Tower investment nor in any of the investments in Napa Valley nor luxury homes in Hawaii, Utah, Arizona and other locations that led to so much adverse publicity for the fund.

Stay tuned for how the pension board plans to proceed as it discusses the suit today. I’m curious to see whether CDK can, indeed, prove it did nothing but great things for the pension fund — which is the tone of its lawsuit — given the following:

CDK was a big player in the decades-long romance the Dallas Police and Fire Pension Fund had with real estate investments.

In July 2012, the Dallas Morning News started looking at this real estate infatuation – at the same time that the pension fund was looking to reduce its exposure. Among its targets was to cut its real estate allocation target to 15 percent of net assets. At the time, real estate accounted for 23.5 percent of the assets, the single largest investment category and well above the current allocation target of 18 percent.

The DMN news article, by my former colleague Gary Jacobson, went on to point out this:

One real estate adviser alone, CDK Realty Advisors, manages about 17 percent of the system’s total net assets. By itself, CDK, which has its headquarters in the same building as the pension fund, would exceed the proposed new real estate target allocation.

Later that same month, Anna Merlan reported on CDK’s role in this Dallas Observer article on the fund:

Akard Place is also one of the fund’s projects that’s managed by CDK Realty Advisors, the seven-person firm that oversees 70 percent of the fund’s real estate assets. That’s $500 million with one small company. The two entities also share an office building, which they co-own, an unusually cozy relationship between advisor and client.

Management fees to CDK and other investment advisers make up the pension fund’s single largest expense. Fees have climbed almost every year for the past decade. In 2001, DPFP paid $11.5 million in fees. By 2007, as the fund’s assets approached $3 billion, it shelled out $17.5 million.

Tettamant lost his job about 17 months ago; since then, an administrative team that has won high praise from both board members and Mayor Mike Rawlings has been hard at work on solutions.

Among the actions: the pension fund began moving some assets out of the CDK portfolio to other managers in order to reduce any possible risk. CDK responded by telling the board last summer that it was resigning as of Sept. 30.

So now comes a notice to board members that CDK is suing.

That’s just great. The board now will have to spend valuable time, and more important, big money in the form of lawyer’s fees to respond to this suit.  A suit that seems all the more ridiculous given that, despite CDK’s claims, others maintain that its work – alongside Tettamant’s decision-making – didn’t do much to wisely grow the pension fund.

The risky investment strategies of Tettamant and crew are a topic our editorial board has repeatedly written about. Here’s an excerpt from one of those editorials:

Once reporters started combing through its books, it became clear that Tettamant’s investment strategies were risky. The fund had put far too much money into exotic real estate deals, like luxury homes in Hawaii and a resort and vineyard in California — not to mention Museum Tower itself.

The fund’s board members and staff also were fond of taking trips to “check on” these investments, excursions that sounded more like pleasure jaunts than actual work.

As I said at the top, you might send an Advil or two to trustees on the pension fund board. Or maybe better, some heavy-duty mud boots to help them out of this latest muck.

http://dallasmorningviewsblog.dallasnews.com/2016/02/new-cdk-lawsuit-knocks-dallas-police-fire-pension-fund-back-in-the-muck.html/