San Diego City moves to AQR for small-cap international equity

San Diego City Employees' Retirement System hired AQR Capital Management to manage a $64 million in the firm's new AQR International Small Cap EAFE Fund.

AQR replaces Grantham Mayo Van Otterloo which ran $64 million in the GMO Foreign Small Companies Fund, according to minutes from the July 11 meeting of the $7.4 billion pension fund's board show.

The SCDERS board hired GMO for small-cap international equities in 2002. In 2016, citing underperformance, the board cut GMO's $112 million allocation to $64 million, reports from staff and investment consultant Aon Hewitt show.

Continuing poor performance and subsequent investor withdrawals led GMO executives "to shut down the international active team, and move all assets to the global equity team," the staff report stated. "This change creates an investment strategy that is completely different from the strategy initially approved by SDCERS in 2002."

GMO executives declined comment, spokesman Tucker Hewes said in an email.

Staff and Aon Hewit launched an invitation-only search to replace GMO in May.

Separately, SDCERS committed $50 million each to Mesa West Core Lending Fund, an open-end core real estate debt fund managed by Mesa West Capital, and to MetLife Commercial Mortgage Income Fund, an open-end, diversified core domestic real estate debt fund. The commitments were made as part of SDCERS' fiscal year 2018 real estate investment plan that, in part, calls for a tactical overcommitment to real estate debt to increase diversification and "to mitigate the risk of the portfolio's all-equity composition given the mature point of the (real estate) cycle," a staff report stated.

SDCERS also committed $47 million to Deutsche Bank's RREEF AmericaREIT II Fund, a core, open-end fund, according to staff and Aon Hewitt reports. The mandate is being funded by the liquidation of a Deutsche Asset Management individually managed account. The board began liquidating the account in 2016 and six to eight assets from it are expected to be liquidated over the next 12 months.