Independent Operational Review of the Public Safety Personnel Retirement System (the System) Investment Strategies, Alternative Asset Investment Procedures, and Fees Paid to External Investment Managers

As part of its sunset review, the Office of the Auditor General retained Gallagher Fiduciary Advisors, LLC (Gallagher), a subsidiary of Arthur J. Gallagher & Co., to conduct an independent review of the Public Safety Personnel Retirement System’s (System) investment strategies, alternative asset investment procedures, and fees paid to external investment managers from fiscal years 2005 through 2014. Over the cumulative 10 fiscal years analyzed, Gallagher determined that the System’s investment performance ranked in the 92nd percentile of public pension plans and that the System met its actuarial assumed rate of return in every year except for 2006, 2008, 2009, and 2012, largely because of poor market conditions in those time periods and underperformance in its holdings in real estate and equities. In addition, Gallagher determined that the System has a written process for selecting and evaluating new alternative investment managers, but that the System does not explicitly outline a procedure for fee negotiation in its documented due diligence procedures. Gallagher recommended that the System include additional details in its quarterly investment reporting, formally document procedures and update them on an annual basis, and compare potential investment manager fees to an appropriate benchmark.