<!-- Swiftype Variables -->

Pension Funds

Fresno County Employees names 2 finalists in small-cap equity search

Fresno County (Calif.) Employees' Retirement Association named Henderson Geneva Capital Management and Pacific Investment Management Co. as finalists in its search for a domestic small-cap equity manager to run about $60 million, said Donald Kendig, retirement administrator, in an email.

Finalist presentations will take place at the Aug. 2 board meeting. A hiring decision could be made the same day.

Funding will come from Kalmar Investments, which ran about $60 million in a similar strategy and was terminated.

Kalmar had been put on watch earlier this year because of performance concerns and asset outflows at the firm.

An earlier memorandum from FCERA's investment consultant Verus to the $4 billion pension fund's board showed that Kalmar's strategy underperformed in 2014 and 2015, which Verus believed was due "in large part to stylistic headwinds." Those returns in 2014 and 2015 weighed heavily on the strategy's trailing returns, Verus said.

Verus did note that the strategy outperformed its benchmark, the Russell 2000 Growth index, in 2016, for the first time since 2013, due partly to favorable stock selection in health care.

According to the same memo, Kalmar had about $1.2 billion in net outflows in 2016, driven in part by Vanguard's decision in January 2016 to remove Kalmar as a subadviser on the Vanguard Morgan Growth Fund and reduce its allocation to 16% from roughly 21% in the Vanguard Explorer Fund. Although Vanguard's decision did not directly impact the strategy in which FCERA was invested — Kalmar Growth-with-Value Small Cap equity — that strategy experienced about $113 million in net outflows in 2016,

A Kalmar official was not immediately available for comment.