DALLAS, TX – Board members and employees of the Dallas Police and Fire Pension System have spent close to $1 million in recent years traveling the globe.
The costs do not include tens of thousands in travel expenses paid for by private investment managers and contractors who do business with the pension fund.
Board members, who include Dallas City Council members, traveled to Europe, the United Arab Emirates, Hawaii and Napa Valley, Calif., among other destinations.
Late last week, in response to requests from The Dallas Morning News and others, pension officials released thousands of pages of receipts and expense reports. Then they quickly posted a statement on the fund’s website, pre-emptively replying to anyone who might take issue with the costs.
In the statement, pension trustee and Dallas firefighter Rick Salinas argued that the travel “is important because it allows us to do site visits and due diligence ourselves based on information and guidance from our managers and consultants.”
“It gives us a much higher level of confidence in our investments and the organizations we work with when we can personally view the property and meet the property’s management staff.”
Pension officials have found themselves on the defensive in recent months while they have been locked in a dispute with the Nasher Sculpture Center over glare from the 42-story Museum Tower, which the fund owns.
According to Salinas’ statement, pension fund staffers and board members spent $185,000 in 2012 on trips to oversee current investments, research new ones and attend conferences. That amount was down from prior years.
Over the past four years, the system has budgeted about $1.5 million for travel, according to documents. Pension officials say they have spent less than that.
“Pension conferences are timely, on target, and the educational content very beneficial,” Salinas’ statement said. “They let us know what’s going on in the investment world, helping us to make better business decisions.”
Pension officials say their travel costs are small next to the $3.6 billion in investments under their care. They also say the nature of their portfolio requires more hands-on due diligence than simply investing in stocks and bonds.
The Dallas fund is among the most aggressive in the country in investing in alternative investments, such as real estate, private equity and infrastructure. They make up about half of the fund’s investments.
“While many pension systems passively manage their portfolio, we have chosen to take a more active role in managing our investments,” Salinas’ statement said. Pension officials say overseeing investments in-house saves the system about $4 million per year in management fees.
Still, the system racked up $32 million in management fees in 2011. In comparison, the Dallas Employees’ Retirement Fund — for civilian workers — spent $13.2 million.
The ERF had $2.75 billion in assets then, which included less than 8 percent in alternative investments such as real estate. In 2011, the ERF spent $136,000 on due diligence trips, conferences and training, according to executive director Cheryl Alston.
Richard Tettamant, administrator of the police and fire fund, defended its approach in an email Monday. “Nobody runs a tighter, more efficient, more productive pension system than we do,” he wrote. “Everyone in the business knows that. It’s hard work by everyone, but it clearly pays off.”
But some of the real estate investments that the Dallas fund has overseen internally have struggled. In 2011, the fund was forced to write down the value of several ultra-luxury homes in Hawaii, Aspen and elsewhere by a total of $20 million.
This occurred despite several trips to Hawaii by Tettamant and other pension officials to oversee the properties. A June 2008 pension fund newsletter noted that one of these Hawaii trips happened en route to size up a construction company in Sydney, Australia.
“On the way to and from Australia, we stopped in Hawaii and checked on some properties we bought,” former board member Rector McCollum, a Dallas police sergeant, wrote in the newsletter. “The ones we sold were profitable and the future looks pretty bright on the properties we purchased.”
But the future of the properties was not bright. Within a year, as the housing market fell further into crisis, the pension fund pumped in more money to keep the investment afloat.
In June 2009, Tettamant flew to Hawaii to deal with the situation. His trip cost $3,374, according to his expense report. While there, he lodged for two nights at no charge in one of the luxury homes.
Tettamant says staying in properties owned by the fund saves on hotel bills. While they are there, he wrote in an email, “we visit each property to make sure that they are being maintained to the standards that a prospective buyer for this type of luxury home expects.”
Two years in a row, in 2008 and 2009, pension officials traveled to a world energy conference in Abu Dhabi. During the second conference, seven pension officials made the trip, submitting expenses totaling about $110,000.
Their travel was publicized at the time by The News, and it led to scrutiny from some police officers and firefighters. The year before, with the markets tumbling, the value of the fund’s assets had dropped by nearly a quarter.
McCollum, the former board member, defended the travel in a March 2009 newsletter. Some police officers and firefighters “have questioned whether or not we can justify the travel that we have logged in the last year or so while markets are down,” the newsletter said. “Well, in a word, yes! Actually, it is precisely in such hard times that we have to work harder to maintain our place among other public pension plans to find good investments.”
The newsletter described how, on the way home from Abu Dhabi, board members stopped in Italy to check out a large European bank and an Italian investment adviser. It wasn’t all work, however. An undated photo obtained by The News through a records request shows Tettamant sightseeing at the Leaning Tower of Pisa. After Italy, the newsletter says, some members of the Dallas contingent continued to Zurich to attend a conference.
“Travel from the United Arab Emirates to Italy to Switzerland sound extravagant to you? Actually it’s the most economical way to get done what was required of us,” McCollum wrote. “Still think the travel is excessive? I would suggest to you that a lot of other pension funds didn’t think it was necessary to do due diligence on a guy named Bernie Madoff.”
Many of the trips by pension officials are funded by private investment managers and contractors who do business with the pension fund. Late in 2009, for instance, nine pension system employees and trustees, including Tettamant, went to several conferences in Europe over about a week.
One item of business was a meeting in Edinburgh, Scotland, to learn about a new investment that one of the pension fund’s investment managers was considering. Expense reports do not list any transportation costs from Dallas, and there were no lodging costs for the night of the meeting.
The meeting was arranged by L&B Realty Advisors, a Dallas company that has long worked for the pension fund. Three of the company’s officers, including its chief executive, made the trip to Edinburgh. A couple of weeks after the meeting, L&B announced a $250 million joint venture with Mayfair Capital Investment Management, the firm that it had introduced to the Dallas pension system’s delegation.
Contractor-sponsored travel is common among pension systems, and the Dallas fund’s ethics policy condones it. It is “appropriate and desirable for Trustees and Employees to attend various conferences throughout their tenure and employment, including those sponsored by contractors,” the policy says.
The practice, however, does have detractors. Edward Siedle is a former SEC lawyer and president of Benchmark Financial Services, a firm that investigates pension fund abuses. He says slick money managers, unsophisticated trustees and a lack of government oversight are a formula for ethical problems.
“The end result is what we have, which is pension funds where investment decisions are not based on who’s the best but who you know,” said Siedle. “It is a wining and dining environment.”
After the scrutiny caused by the Abu Dhabi trip, pension officials took steps to curtail travel spending. Under a new policy the board approved in 2010, the 12 board members are restricted to $10,000 apiece for educational travel each year.
The board chairman is eligible for an additional $2,500 a year, making the total allocation $122,500 per year. But the policy allows for additional expenses to attend certain major conferences and doesn’t count travel by staff.
Pension officials have made frequent trips to Napa County to oversee a luxury resort and other fund investments there. In response to records requests, pension officials released expense reports for 18 trips to Napa since 2007. From two to four pension officials, almost always including Tettamant, participated in each trip. Other pension system documents reference more visits.
At times, pension officials have lodged in Napa accommodations owned by the fund. Other times, they lodged comfortably in boutique hotels. For a conference in Napa in July 2007, Tettamant’s expense records show he paid for a $630-per-night suite. He said the room was booked through conference organizers, and the hotel did not offer a discounted rate.
But recently, the lodging has become more economical.
During a trip to Napa in 2011, Tettamant stayed in a Fairfield Inn. And for a trip there this month, as his staff was compiling expense reports to release to reporters, Tettamant booked a room at the Holiday Inn Express.