Los Angeles County Employees Retirement Association, Pasadena, Calif., is initiating searches for a Treasury inflation-protected securities manager, real assets completion portfolio manager and specialized consultants, said Jonathan Grabel, chief investment officer for the $56 billion pension plan.
LACERA could issue as early as this month or September an RFP for additional consultants for hedge funds, illiquid credit and real assets, excluding real estate. These are new mandates. Current consultants are being invited to bid along with new bidders to all or part of the three mandates. Four percentage points of LACERA's 24% target allocation to its risk-reducing and mitigating asset class are in hedge funds. Three percentage points of its 12% credit allocation are in illiquid credit. LACERA has a 17% target allocation to real assets and inflation hedges asset class. The board could make a selection as early as January or February 2019.
Pension fund officials expect to launch as early as September an RFI for a manager to run a completion portfolio, which is a liquid real asset mandate. The selected manager would invest in an infrastructure and natural resources securities to maintain the infrastructure and natural resources suballocations. The portfolio will later be drawn down over time to provide proceeds to make private fund investments in infrastructure and natural resources. The completion portfolio will be used to maintain a consistent allocation to these subasset classes as cash flows to and from private fund investments. Mr. Grabel said up to a 4% allocation will be awarded that will be reduced over time. General investment consultant Meketa Investment Group is assisting.
LACERA officials will begin making private investments in 2019, subject to board approval. Three percentage points of the 17% real assets and inflation hedge allocation is targeted for private infrastructure and 4 percentage points is for private natural resources and commodities.
The RFI and RFP will be posted on LACERA's website.
LACERA officials are also beginning an invitation-only search as a result of a new asset allocation that includes a new TIPS allocation of 3 percentage points of its real asset and inflation hedges portfolio. The mandate would be about $1.5 billion. LACERA officials expect to make a selection by the end of this year or beginning of 2019. Meketa is assisting.
Also, part of LACERA's implementation plan for its new asset allocation includes launching an RFP for an emerging fixed-income manager in the fourth quarter and building a portfolio of direct hedge funds with manager recommendations in 2018. Allocation sizes have not been determined. Staff could make recommendations for relative value hedge fund managers in the third quarter; RFPs will not be issued.
Separately, LACERA hired CornerCap Investment Counsel, Global Alpha Capital Management and Matarin Capital Management for active equity emerging manager mandates. The board at its Aug. 8 meeting invested in the following separate accounts: $160 million to Global Alpha's international small-cap strategy, $125 million to a Matarin North America small-cap portfolio and $60 million to a CornerCap small-cap strategy. The selections were made following an RFP issued in October 2017.
The board also committed up to €50 million ($58 million) to Aermont Capital Real Estate Fund IV, an international real estate fund managed by Aermont Capital, formerly known as Perella Weinberg Real Estate. Aermont is targeting €1.6 billion to make opportunistic real estate investments in Western European markets. LACERA's real estate consultant, Townsend Group, assisted.
The board also committed up to $50 million to Accel-KKR Growth Capital Partners III, a technology-focused mezzanine debt fund.
Both alternative investment firms are new relationships for LACERA.
Also, LACERA earned a net 9% for its fiscal year ended June 30, surpassing its 7.8% benchmark. It returned an annualized net 7.4% for the three years, 8.5% for the five years and 6.3% for the 10 years ended June 30, exceeding or matching its benchmarks.
LACERA's benchmark returns were 7% for the three years, 8.1% for the five years and 6.3% for the 10 years ended June 30. The pension fund returned a net 12.7% the prior fiscal year, topping the 11.2% benchmark.
Private equity earned the most in the fiscal year, with an estimated internal rate of return of 21.2%, besting its 13.7% benchmark. U.S. equities earned an estimated net return of 14.1%, (14.8% benchmark); commodities, 10% (7.3%); non-U.S. equities, 8.8% (8.2%); real estate, 8.2% (7.5%); hedge funds, 5.6%, (6.3%); cash, 1.4% (1.3%); and fixed income, 0.8% vs (-0.3%).
LACERA's target asset allocation as of June 30 was 26.6% fixed income, 22.4% U.S. equities, 21% non-U.S. equities, 11% real estate, 10% private equity, 4.2% hedge funds, 2.8% commodities and 2% cash.