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L.A. Fire & Police to increase management fees by $9.8 million in new budget

Los Angeles Fire & Police Pension Plan’s budget for fiscal year 2018 includes a $9.8 million increase in management fees to $100.6 million, according to a staff budget report for the $20.6 billion pension fund board.

The budget for the new fiscal year, which starts July 1, was approved at Thursday’s board meeting

Budgeted investment management fees as a percentage of total pension fund assets increased to 0.46% from 0.41% in the fiscal 2017 budget in part due to an increase in the pension fund’s assets and an increased allocation to private equity. Calculation of the investment expense budget item assumes a 7.5% rate of return. The pension fund’s actuarial assumed rate of return is 7.25%. (The board lowered it from 7.5% on June 1.) The pension fund has a 12% private equity target allocation and had 9.1% actual allocation to private equity as of May 31.

Separately, the board approved an action plan that includes the staff presenting a report to the board by Dec. 31 about the fees and returns of its private equity portfolio. Also by Dec. 31, staff and RVK, the pension fund’s general investment consultant will conduct a risk analysis of the entire portfolio.

“Some commentators believe that the prolonged period of low interest rates has caused many investors, in their efforts to achieve their desired rates of investment returns, to assume too much risk in their portfolios,” the action plan states.

The project is designed to analyze the pension fund’s portfolio over time and relative to its peers.

In other action, pension fund officials have launched an invitation-only search for an active international small-cap equity investment manager to run $387.9 million currently managed in a passive portfolio by Northern Trust Asset Management. The board decided to launch the search due to an April restructuring of its international equity portfolio. The pension fund has $4.2 billion in international equities.