company serving as portfolio strategist to the $10 billion county pension fund was downgraded last week by one Wall Street ratings agency and given a negative outlook designation by another.
The moves came during the same week Salient Partners of Houston closed a $60 million deal to acquire Forward Management, a San Francisco investment company.
Salient was planning to borrow $175 million to fund the acquisition and refinance about $100 million in debt. It decided later to borrow $115 million, meaning only $40 million in existing debt would be refinanced, a move that reduces the amount the company will save by refinancing at a lower rate.
On June 8, Standard & Poor’s downgraded Salient from BB- to B+.
“In our view, the company has a more aggressive financial posture, primarily exhibited by the expected decline in interest coverage,” the rating agency said.
On Thursday, Moody’s Investors Service lowered its outlook for the company from stable to negative.
That action reflects Moody’s “diminished view of Salient’s financial flexibility due to the reduction in the refinancing’s proposed interest cost savings, as well as concerns over the company’s market access due to its inability to refinance the subordinated debt in full.”
The Salient chief executive said the rating agencies’ actions have no impact on its work for the San Diego County Employees Retirement Association, which serves more than 40,000 current and former government workers.
“Although S&P and Moody’s have made recent adjustments to their opinions of Salient, none of these rating agency actions have any bearing on our investment strategies, the SDCERA pension plan or its plan members,” Chairman and CEO John Blaisdell said in a statement Monday.
County pension officials, who last year opted to hire an in-house staff chief investment officer instead of relying on the Texas consultant for that function, also said the rating agencies’ decisions had no effect on the fund or its members.
“On May 29, Steve Sexauer started full-time as SDCERA’s chief investment officer,” spokesman Dan Flores said. “Steve and SDCERA’s investment staff now supervise and monitor Salient’s investment activities and are in regular contact with Salient with respect to the positions and performance of the portfolios that Salient manages for SDCERA.”
Salient has been paid up to $8 million a year for its investment advice, and its contract is scheduled to be phased out by November. The company was criticized for use of leverage in the fund, creating market exposure well beyond the fund’s base value.
County pension trustees dialed back the leverage last year, after The San Diego Union-Tribune highlighted the unconventional investment strategy and national news organizations like The Wall Street Journal and Bloomberg News picked up the story.
Board meetings throughout last summer were crowded with pensioners and union employees demanding trustees remove Salient as investment consultant. In March, the retirement board accepted the resignation of longtime CEO Brian White.
Flores said Sexauer is now in charge of the portfolio, although Salient continues to manage three of its investment strategies. The new chief investment officer also is working with the retirement board to develop a new investment policy in coming weeks, he said.
No comments:
Post a Comment