Bad investment strategies still haunting Dallas' public safety pension

Risky investments from seven years ago appear to still be hurting the dallas Police and Fire Pension System. While a deadline to submit a plan to fix the billions in unfunded liabilities looming, a city contractor says its time to make better investment decisions.

Dory Wiley is the president and CEO of Commerce Street Investment Management and worked on an initial analysis of the Dallas Police and Fire Pension System’s investments. Wiley told the city’s Ad Hoc Committee on Pensions that the fund was performing below average, compared to other systems in Texas.

Wiley presented a chart with 33 Texas retirement funds, including Dallas’ sworn and non-sworn systems included. Dallas’ public safety fund ranked last in 10-year net returns across the state.

“The bottom two are Dallas police and fire,” Wiley told the committee during Thursday’s meeting. “One with the private assets and one [without] the private assets.”

Wiley said the public safety fund has done a good job with investments in public equity —or stocks. As of June 2023, the fund has received over 8% in returns. That’s more than other peer cities, according to Wiley’s presentation.

“But having said that, we go to the private equity and then that’s where the underperformance is,” Wiley said. “Part of that is legacy assets…they’ve been dealing with them for the last seven years, I know they’re still dealing with them.”

Those legacy assets include real estate investments that landed the pension fund in the situation it’s in now. Last year, those assets returned just over 4% compared to 17% in Houston and other similar-sized funds in Texas.

Basically, Wiley told the committee it was more about where the funds assets were allocated that dictated the returns. If weighed correctly, Wiley says the fund could be getting way more in returns.

“We have to spend a lot of time on asset allocation because that’s the key,” Wiley said.

During the meeting, District 12 Council Member Cara Mendelsohn questioned Wiley’s firm — and his knowledge about how the police and fire pension system works.

"You are questioning some of these investments...are you finding under their current structure that you feel that they may not be receiving appropriate investment advice?" Mendelsohn asked.

“All I can tell you is my cursory analysis that we’ve done,” Wiley said. “They may be doing everything perfectly but from my initial analysis, it doesn’t appear so.”

Mendelsohn also asked about the firms current work. Wiley said Commerce Street Investment Management does not manage or consult for other government pension systems right now — but he has personally served on large fund boards in the past.

“I don’t mean this to be a combative question, but do you think you’re qualified to make the decision to advise us?” Mendelsohn asked during the meeting.

“That’s up to you,” Wiley responded. “I’ve been doing this a long time, I’ve got an undergrad [degree] in accounting and finance…a master’s from [Southern Methodist University], I’m a CPA, I’m a CFA.”

“Last I checked I’m the most licensed person in the industry in Texas, but I could be wrong, someone may have taken another test and gotten me,” Wiley added.

Wiley said there is a lot of work to be done on the city’s pension, that it was a thankless job and that he wouldn’t do it if it wasn’t Dallas.

“I’ll be honest with you, its sort of like seeing a hurt dog in the road and I know if I go help it I know I’m going to get bit, and that’s okay,” Wiley said. “I love Dallas, this is the best city in the world, we shouldn’t have any pension fund problems.”

While a restructuring of investment allocations may help add money into the ailing pension fund, Dallas officials still need to present a plan to state regulators that details how the billions in unfunded liability will be remedied. That deadline is November 1.

Got a tip? Email Nathan Collins at [email protected]. You can follow Nathan on Twitter @nathannotforyou.

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