Pensions Lose Key Players
According to "Public funds taking long view" by Raquel Pichardo (Pensions & Investments, July 23, 2008), pension decision-makers are retiring in droves. At a time of great uncertainty and a fast-changing operating environment (new accounting rules, market volatility and increased transaction complexity) it may not be easy to quickly replace experienced professionals. Add the fact that public plans are not always in a position to match industry wages and real concerns emerge.
Succession planning is likewise important when it comes to vetting the riskiness of external money managers. When pensions allocate monies to various hedge fund and/or private equity partnerships, they are essentially making a bet on whether existing management can turn in a "good" risk-adjusted performance on a regular basis.
- What happens if any or all of the key persons leave for greener pastures as superstar traders are wont to do?
- What happens if a general partner gets divorced and, absent a plan to protect partnership assets, the spouse becomes the new owner? What happens if that spouse knows little about running a financial partnership)?
- What happens if a senior partner or managing member (in the case of a Limited Liability Company) is in an accident and rendered unable to make important decisions about strategy?
If not already part of the RFP and/or periodic reviews of external money managers, pension fiduciaries should add questions about key persons, key person insurance and whether a succession plan exists. Ex-ante investigations can potentially save plan sponsors a lot of grief later on.
