Orange County Employees Retirement System, Santa Ana, Calif., is terminating or liquidating the portfolios of six managers with a combined $1.235 billion in assets as a result of a new asset allocation the $14.1 billion pension fund adopted in January, spokesman Robert Kinsler said.
OCERS terminated global equity managers Franklin Templeton (BEN) Investments (BEN), which manages $162.5 million; Grantham, Mayo, Van Otterloo & Co., which runs a $137.9 million portfolio; and J.P. Morgan Asset Management (JPM), with a $150.6 million portfolio. Fifty percent of the managers' assets will be transferred to a U.S. equity index strategy and 50% to an international equity index strategy.
OCERS terminated the managers in part due to the expected performance challenges of active compared to passive strategies in the future and to save on fees, according to a report by Meketa Investment Group, OCERS' general investment consultant.
OCERS is also liquidating the $232.3 million real-return mandate managed by Pacific Investment Management Co. in its PIMCO All Asset All Authority Fund. Pension fund officials are also liquidating global tactical asset allocation mandates managed by Standard Life Global Absolute Return, $299.3 million; and GMO Benchmark-Free Allocation Fund, $252.4 million. OCERS staff and investment consultants will redeploy the proceeds from both portfolios. Further information how the assets will be invested could not be learned by press time.
Meketa estimated that OCERS would save at least $9 million per year in annual investment management fees. The actual fee savings will likely be higher because Meketa said several managers also charge performance fees, which was not included in the calculation, Meketa's report noted.
“These strategy eliminations will assist with the (investment) committee's goals of simplifying the portfolio, reducing the overall number of strategies, holding only exposures that move the needle for performance and reducing costs,” Meketa's report said.
Separately, the investment committee at its March 28 meeting approved target ranges for its asset classes. Global public equity has a target range of 28% to 42%; private equity, 4% to 12%; core fixed income, 12% to 22%; credit, 8% to 18%; real assets, 17% to 27%; risk mitigation, zero to-10%; and cash, zero to 5%.
OCERS new asset allocation, adopted in January, eliminated a 14% absolute-return allocation and decreased credit by 1 percentage point to 13%. The new asset allocation also increased private equity to 8% from 6%, core fixed income to 17% from 13%, real assets to 22% from 18% and risk mitigation to 5% from zero. Global equity is unchanged at 35% and cash remains at zero.