The state's procurement director has cautioned the Arkansas Public Employees Retirement System that changing investment managers for reasons other than financial ones is a "slippery slope," system Director Gail Stone told the system's board of trustees Tuesday.
The trustees then took no action regarding a state senator's request for the system to take bids for an investment manager for its Arkansas stock portfolio.
Two months ago, Sen. Jeremy Hutchinson, R-Little Rock, on behalf of a client, asked the trustees to issue a request for business proposals to manage the Arkansas stock portfolio. At that time, a few trustees delayed a decision, saying they wanted more information about their options.
Hutchinson is an attorney representing Ellis Sloan, portfolio manager for Kernodle and Katon Tax & Asset Management Group. Sloan once worked for Horrell Capital Management, where he created the Arkansas index fund for the retirement system and managed it for several years. Sloan departed Horrell Capital Management last year for his current employer.
Horrell Capital Management of Little Rock manages the system's Arkansas stock index fund, which totals more than $97 million, Stone said. The firm charges an investment management fee of 0.19 percent of the fund's market value. The system's investments are valued at more than $7.8 billion.
Stone told the trustees that at their request, she conferred with Office of State Procurement Director Ed Armstrong about requirements for issuing a "request for proposal" for the Arkansas stock portfolio.
She said she told Armstrong that "an individual who had been part of our portfolio management had left a company and joined another [company]." That happens all the time with investment managers, and system officials "watch and wait" in these cases before deciding whether to change investment managers, Stone said.
Stone said Armstrong indicated that the Office of State Procurement would help the system in issuing a request for proposal and the process would take about six months, if the trustees want to pursue that option.
Armstrong "did caution that changing investment managers for other than institutional reasons is a slippery slope, and to be careful about what you are considering," Stone said. "He made it clear the board is under no obligation to do anything that it doesn't see in its fiduciary capacity."
Armstrong "advised that if the services that are currently being rendered are satisfactory, which to all accounts are, he wondered out loud why we would entertain such a change," Stone said.
In February, the trustees decided to renew the contract with Horrell Capital Management, after Sloan had asked the trustees to open a search for an investment manager for the Arkansas stock portfolio.
Hutchinson, said in an interview that he believes that the trustees have a fiduciary responsibility to seek out the lowest cost bidder for the Arkansas index fund, and he's curious how they are doing so without issuing a request for proposal. Hutchinson is a nephew of Republican Gov. Asa Hutchinson.
After Tuesday's meeting, Trustee Andrea Lea, who is the state's auditor, said, "The impression I get is that it is unusual to do it halfway through [the current fiscal year that started July 1], and that it is dangerous to do it based on a [single] person requesting it, so I don't see it coming back up again."
NW News on 10/26/2016