SAN DIEGO - The San Diego City Employees' Retirement System restructured more than a quarter of its $1.4 billion fund, adding nine managers and making its first international investments.
Doug McCalla, investment officer, said no managers were terminated in the $390 million shift.
Among the changes, the fund:
Allocated 13% of its total assets to international equities;
Targeted up to 4% for international bonds;
Increased its domestic equity allocation to 41% of total assets from 35%;
Reduced its domestic fixed-income exposure to 34% from 55%; and
Hired two convertible bond managers, while increasing the assignment of another.
Hired for international equities, subject to due diligence, were: Capital Guardian Trust Co., Los Angeles, which will manage $43 million in international small-capitalization equities; Brandes Investment Partners Inc., San Diego, $71 million for value equities; and Putnam Cos., Boston, $71 million for growth equities.
In raising its domestic equity exposure, the fund added two midcap and two small-cap managers.
In the midcap sector, it hired Trinity Investment Management Corp., Bellefonte, Pa., to run $46 million in value equities, and GlobeFlex Capital L.P., San Diego, to manage $48 million in growth equities.
In the small-cap area, it hired Dimensional Fund Advisors Inc., Santa Monica, Calif., for value equities, and Wall Street Associates, La Jolla, Calif., for growth equities, assigning each $29 million.
For convertible bonds, the fund hired Nicholas-Applegate Capital Management, San Diego, to run $33 million, emphasizing the equity aspects of convertibles, and Loomis, Sayles & Co., Boston, to run $10 million, emphasizing debenture analysis in the "busted" sector of the convertible market. The Loomis hiring is subject to final due diligence.
San Diego also added $10 million to the portfolio of existing hybrid convertible bond manager GW Capital Inc., Bellevue, Wash., continuing to focus on a sector-rotational strategy emphasizing the fixed-income aspects of convertibles. GW Capital now will manage $15 million for the fund.
In all, according to Mr. McCalla, the convertible bond strategies will represent 4%, or $56 million, of the 34% allocated to domestic fixed income.
Donna Wills, vice president and consultant, and Inga Sweet, vice president-international consultant of Callan Associates Inc.'s San Francisco office, assisted in all of the searches, except in the convertible bond area. Linda Brewton, the fund's investment analyst, coordinated the convertible securities searches.
Mr. McCalla said funding for the changes will come from cash and reducing assignments of three domestic fixed-income managers and one equity manager. The fixed-income managers whose assignments the fund reduced are Pacific Investment Management Co., Newport Beach, Calif.; NCM Capital Management Group Inc., Durham, N.C.; and Smith Graham & Co. Asset Management, Houston. PIMCO was reduced to $356 million and the latter two managers to $58 million each. The individual reductions for each of the three fixed-income managers weren't available, although together the three managers had been running $770 million.
PIMCO, however, was given authority in its existing assignment to invest up to 4%, or about $55 million, of the fund's total assets in international bonds. That would represent more than 15% of PIMCO's total portfolio.
In addition, Mr. McCalla said, the fund reduced the domestic large-cap growth assignment of Ashland Management Inc., New York, to $115 million from almost $200 million, taking the profit in the week of July 10.