Los Angeles City Employees’ Retirement System adopted a new strategy allocation for its $2.6 billion fixed-income portfolio.
The $11.1 billion association is eliminating its 12.6% investment in passive core, decreasing active core-plus by seven percentage points to 67%, and increasing short duration by one percentage point to 17% of the portfolio. At the same time, the association allocated $413.8 million, or 16%, of the portfolio, to new strategies that will be chosen later this year, said Robert Aguallo Jr., general manager. The new strategies could include absolute return. Consultant PCA will bring an investment plan to the board, Mr. Aguallo said.
System officials will eliminate a $323.3 million Lehman Aggregate bond index fund run by Lehman Brothers Investment Management to fund opportunistic value-added strategies. “They’ve done a great job, but the board is looking to add more value beyond a passively managed strategy,” said CIO Daniel Gallagher.
Lehman’s $918 million core-plus portfolio was cut by $58 million and Loomis Sayles’ $906 million core-plus portfolio was trimmed by $46 million.
The board will also increase a short-duration portfolio run by LM Capital by $83.5 million, for a total of $220 million. Partial funding will come from cutting $50.9 million from an active short-duration portfolio run by Baird Advisors, leaving it $218.8 million. The remainder will come from the core-plus reductions.
The board also reclassified its Whippoorwill Distressed Opportunity Fund investment as distressed debt and increased its commitment by $50 million, from $10 million. The fund had been classified as private equity. The board also allocated $50 million Oaktree Loan Fund and $25 million to ING Clarion Debt Opportunity Fund II.
Separately, the board renewed the contract of Thomson Horstmann & Bryant, which manages $400 million in an active domestic small-cap value equity portfolio for the fund. It was due to expire when Sept. 30. No RFP was issued. It also committed $15 million to CIM Real Estate Fund III.
The board also voted to hire executive search firm EFL Associates to seek a replacement for Mr. Aguallo, who will retire Dec. 31.
