Dallas Police & Fire Pension Chairman Decries Media Scrutiny, Pushes Back Against Nasher

Museum Tower Thibodeaux.jpg
Photo by Brandon Thibodeaux
The Nasher Sculpture Center has been feuding with Museum Tower, its shiny new neighbor in the Arts District, over light, heat and reflectivity for going on six months now. At the end of July, we published a story showing that the tower isn't the only risky real estate project the pension fund has chosen to invest in. That's part of a broader investment philosophy in which higher-risk alternative investments make up half their portfolio. It is, as financial analyst Ed Easterling told us, "a very risky strategy for a taxpayer-backed entity."

In the fund's newsletter this month, George Tomasovic, chairman of DPFP's trustee board, responds to some of those criticisms. Sort of. In a lengthy editorial, he suggests that the onus is on the Nasher to change the orientation of its skylights, suggests that the media is attacking the pension fund "as a part of the general attack on public employee defined benefit plans like ours," and points out that all the other big cities have shiny glass buildings.

"Over the past couple of months I've traveled to three cities: New York, Chicago and Houston," the chairman writes in the letter, which was pointed out on the Morning News' arts blog last week. "What do they all have in common? Tall glass buildings, which reflect the sun! Believe it or not, they are proud of these buildings because they bring life and vibrancy to the downtown areas. Not only that, they bring tax dollars and jobs! That was our goal when we decided to build Museum Tower."

Tomasovic insists that the pension fund "carefully studied the issue" before deciding to invest in the project, and asks why the press didn't criticize the design before the tower was built. He never mentions that the reflectivity issues only arose after the pension fund bought the entire project and doubled its height.

"We built a beautiful glass building in a city full of glass buildings," Tomasovic adds. "A simple solution would be to shade or make a modest, and from their visitors experience, an almost invisible change to the design of the roof skylights of the Nasher.
For some reason, that seems to be out of the question. It has been done in other cities with [Renzo] Piano designed roofs, because of similar reflectivity issues."

This isn't the first time the pension fund leadership has suggested, directly or indirectly, that the responsibility for fixing the problem lies with the Nasher. But it is interesting: sources with knowledge of the fund's operations told us recently that DPFP would probably be trying to resolve this dispute very soon, because hardly any of the condos in Museum Tower have actually sold. The proposed solutions we've heard about all involved some changes to Museum Tower's property. But Tomasovic, obviously, is suggesting something very different, and in doing so, indicates that a resolution may not be very close at all.

Tomasovic also attacks the open records requests made by local media outlets. The Observer, for example, asked for information on all the alternative investments the fund is currently involved with, as well as any gains or losses to date. Despite repeated requests, the pension fund didn't provide that information. Instead, we were eventually presented with a list of seven "successful investments" and some general information on how much money DPFP keeps with each investment advisor.

The chairman suggests that, in general, open records requests are "possibly ... part of a general attack on public employee defined benefit plans like ours," and disparagingly notes that the media is "requesting tens of thousands of documents."

Yep: This is an entity paid for entirely with taxpayer money suggesting that it's hostile or presumptuous for us to ask where our money is being invested.

In reporting the cover story, I heard several times that any criticism of the pension fund is probably an attack on public employee unions and defined benefit plans. A little explanation: a defined benefit plan makes specific promises to its pensioners about the amount they'll receive when they retire. A lot of conservative think tanks and economics professors will suggest that pension systems should move to "defined contribution" models, in which future pensioners pay in a specific amount, but a specific pay-out isn't guaranteed.

That's the free-market model of retirement benefits, and it's not actually what any of the local media coverage has been about. Our cover certainly wasn't suggesting that DB plans are a bad idea. But it's an excellent boogeyman to keep Dallas police and firefighters from asking where exactly their paychecks are being invested.

A few months ago, I spoke to Ron Pinkston, president of the Dallas Police Association. I asked if DPA members were following the Museum Tower controversy or had any concerns about the direction of the pension fund.

"They're not talking about what the pension board's doing," Pinkston replied. "They're talking about what's going around in the country where public pensions are under attack...People are coming after them. We've always had low pay and low benefits. And we've had an average pension that we look forward to. Now they're looking to take that away too."

Referring to a cover story in D Magazine a few months ago about Museum Tower, he said, "That was a political attack. That's what it appeared to me."

"Maybe they're a little riskier than some," Pinkston said. "But you can't be rated the top pension in the country if you're not performing above everybody."

In fact, DPFP's unreleased annual report shows a dismal performance by the pension fund last year . An April New York Times analysis showed the fund's five-year rate of return isn't anywhere near the top in the country.

In the last 10 years, many other pension funds have out-performed DPFP, according to Cliffwater LLC, a consultant company that studied 69 funds across the country. The average rate of return, according to Cliffwater: 5.7 percent, compared to DPFP's 4.3 percent. That's nowhere near the 8.5 percent target they're shooting for each year.

Tomasovic promises in his editorial that the "media storm is not over" and the DPFP will continue to "attempt to keep the record straight."

Us too.


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19 comments
l.gdbrown
l.gdbrown

I apologize for the late reply but I was taking care of my granddaughter today. Anna, no one on the TEXPERS board is on the DPFPS Board. TEXPERS uses an outside source for their ratings.

Good job though.

 

Jerry Brown

l.gdbrown
l.gdbrown

I,d like to clarify some misrepresentations in your story. Funding for the Dallas Police and Fire Pension system does not come solely from taxpayers. Revenue comes from three sources:member contributions,City contributions, and the growth of it,s investment portfolio. It,s also inaccurate and unfair to only look at very recent investment returns. The DPFPS has been existence since 1918, and views it,s investment strategy over decades instead of months or years like the typical investor. That investment strategy is regularly reviewed by outside experts and adjusted based on economic and financial trends and developments. DPFPS was named "mid-sized pension fund of the year" in 2010, and is one of the top performing pension funds for thr 5,10, and 20 year time periods according to the Texas Association of Public Employee Retirement Systems(TEXPERS). And, finally, DPFPS has diversified its investment portfolio to include timber, agriculture, energy, and many other businesses and investments around the world. It's a sound, conservative, prudent approach in a period of extreme market volatility. 

Jerry Brown

Former Chair of DPFPS

holmantx
holmantx topcommenter

The Museum Tower has a lot more to lose.  They aren't sold out and won't be if buyers think the condos are stigmatized.  Worse, if the cost to cure is heaped onto the association once the building is turned over to the condo owners, why buy in the first place?  And, no doubt the existing owners have a bitch to sue, to be held harmless.  They were promised a unit free of such design flaws and latent defects.

 

They are going to keep fiddling around and they will have to block-sale the units to investors as rental units.  And from a rental income basis, this project won't get within a mile of catching its threshold cost to deliver it to the market.

TheCredibleHulk
TheCredibleHulk

Why, this....! This is an OUTRAGE!

 

How dare you question our questionable practices and performance!

cynicaloldbastard
cynicaloldbastard

The DPFP has to be one of the worst managed pension funds in the country.

In this case, they fucked up, plain and simple. 

And rather than come up with the bucks to fix the problem they caused the fund has decided to yell and scream and blame everyone but themselves. 

The sad part is that the longer they continue to make headlines in the press about this project the more they are hurting themselves with the limited market for the condos in the building.  Who wants to move into a condo that costs over $1million and have everyone ask if you moved into the building that destroyed the sculpture garden?

primi_timpano
primi_timpano topcommenter

So everybody else is wrong, the world is out to get them, and they are a top performing pension fund  Yeah.

 

The letter also makes reference to how much the local investments help the Dallas economy.  The sole objective of a pension is to pay benefits.  Local improvements are not a substitute for fund returns.

 

As for the requested documents, I would think the City Council would be asking for the same thing right now, seeing as the City is on the hook for unfunded benefits.

mavdog
mavdog topcommenter

"Me thinks they doth protest too much"....

primi_timpano
primi_timpano topcommenter

 @l.gdbrown (1) If the Fund's investment program has been so successful, why is the pension underfunded?

 

(2) Why such a high assumed rate of return (8.5%)?

 

(3) How were these alternative managers selected?  Why are there not better known managers?

 

(4) Why are you not releasing the requested records?  By failing to operate transparently one can only conclude the staff has things to hide.

 

(5) If the travel is for valid purposes, disclose the destinations, reasons, costs and participants.

 

(6) Why is the Fund investing so much in the Museum Tower relative to the Fund's assets?  Why did the Fund invest in the equity and guarantee the debt?  Were there no other institutions willing to coinvest?

 

(7) Surely you have run attribution analyses with respect to the Fund investments.  What are the investments causing the Fund to under perform?

 

Right now every independent look at your Fund (DMag and DO) has concluded it is poorly managed, especially with respect to real estate investments.  Until you provide facts backed up with primary documents there is no reason for anyone to believe your protestations to the contrary.  The staff looks incompetent:  bad performance, stupid real estate investments, less than first class staff, no-name hedge funds, and boondoggles galore (those educational trips to far away places).  Worse, the relationship with your real estate advisor upstairs reeks of the worst kind of dirt.

Anna_Merlan
Anna_Merlan

 @l.gdbrown Member contributions come from their salaries, which are ultimately paid for by the taxpayer. So is the City contribution. Citizens underwrite everything that DPFP is doing, which is why this is such a pertinent issue for every one  of us. 

 

The growth of the investment portfolio is exactly what's at issue here, specifically whether or not DPFP or any other pension fund can keep up an 8.5 percent promised rate of return. (Hint: most of the financial analysts I spoke to said it's very unlikely in this economic climate or going forward.) Looking at a 20-year timeframe takes into account a boom in our economic history that will likely never repeat itself.

 

The TEXPERS board of directors' vice president is also a DPFP trustee. Although I respect what they have to say about pension issues, they're not an independent source and shouldn't be cited as one. 

 

Alternative investments, including timber, agriculture, energy "and many other businesses and investments around the world" (including private equity, which DPFP's portfolio contains at twice the national average) are higher-risk and higher-fee approaches to investing. They're increasingly common among public pensions, which is why it's important to evaluate their strengths and weaknesses. Diversification is only one measure of a sound and responsible investment strategy.   

oakclifftownie
oakclifftownie

@primi_timpano

I keep hearing that the city is on the hook for unfunded benefits,How ever  I see those benefits being greatly reduced to minor coverages and pennies on the dollar in pension checks .

I see a power play in the mismanaged funds aspect  so its not the city's fault for the mess .

 

Something must be in the fine print  that lets Dallas walk away .

Its Dallas . Folks should expect it.

anon
anon

 @primi_timpano  @l.gdbrown 

1) whether a pension is underfunded or not is based on whether the city contributes its portion. since governments use phony cash accounting, they can put off cash contributions to claim they've balanced their budgets but they are ultimately on the hook for whatever they've promised to pay. you and I consider that a debt. government entities do not.

2) 8.5% is a high assumption, but not out of line for the industry.

3) you have no idea which outside managers they picked so don't ask why they didn't choose better known managers

6) did the fund actually guarantee the debt? I am pretty sure they just contributed equity; though I agree that they've concentrated too much risk in that particular project

7) the fund is over-invested in real estate, though I believe they've underperformed even the NAREIT so they've also chosen bad investments within the industry

holmantx
holmantx topcommenter

 @Anna_Merlan  @l.gdbrown Then discharge the taxpayer from responsibility.  A simple task if all that you say is true.

 

For I refuse to pay for a retirement system that will not have me as a member.

primi_timpano
primi_timpano topcommenter

 @anon  @primi_timpano  @l.gdbrown Actually, the annual report lists the hedge funds.and the DMag article quotes the fund as having essentially borrowed all the Tower money on a recourse basis.

primi_timpano
primi_timpano topcommenter

 @Anna_Merlan  @oakclifftownie The whole pension investment scheme reeks of pay to play.  At least the SC fund referenced in the NYTimes invested in nationally known funds.  Dallas, however, has placed millions in no name funds, such as the energy fund out of New jersey and the local real estate fund.  The fire tower is just another example of imprudence and stupidity (and I believe likely to be influenced by pay to play).  To essentially own the equity and guarantee the debt is a level of folly no quality developer would never undertake.  Considering the outsized percentage of the pension portfolio, this "investment" represents willful negligence.  The City and the unions should get a better handle on this out of control disaster.

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