BGI, SSgA compete for emerging markets portfolio out West

TIGARD, Ore. — Oregon Investment Council which manages the $60.6 billion Oregon Public Employees Retirement Fund, Salem, this quarter expects to select either BGI or SSgA to implement a new $220 million tiered emerging markets equity strategy, said Michael Mueller, deputy CIO.

Council staff did not issue an RFP or conduct a search.

Currently, several of the council's international equity managers can invest in emerging markets equities. The council also has three active emerging markets managers: Genesis Asset Management, Arrowstreet Capital and Pictet Investment Management.

The tiered strategy is an alternative to the traditional cap-weighted indexes, Mr. Mueller explained. “The proposed structure more equally distributes country weights within three defined tiers, which are rebalanced annually based on country market capitalizations,” he said.

Funding will most likely come from the council's $11.2 billion U.S. equity portfolio. No terminations will result. Consultant Strategic Investment Solutions is assisting.

CHICAGO — Chicago Policemen's Annuity & Benefit Fund terminated active domestic midcap growth stock manager Piedra Capital, which ran $21 million, for organizational reasons and “spotty performance,” said John J. Gallagher Jr., executive director of the $4 billion fund.

The assets were moved to Piedmont Investment Advisors, bringing the total managed in active large-cap domestic equities for the police fund to $43 million.

S. Peter Hidalgo II, Piedra founder and CIO, said he found the termination “unusual, since the strategy was up 260 basis points when we were fired.” Mr. Hidalgo added that his son, Michael Hidalgo, who was senior vice president, client contact and compliance officer, resigned to pursue other interests. Michael Hidalgo's duties have been assumed by others while the firm is in the final stages of hiring a replacement.

LOS ANGELES — The former general manager of the Los Angeles City Employees' Retirement System is under investigation by a city ethics panel for accepting a job at a private equity manager that had done business with the $10.5 billion system, sources said.

According to the sources, who asked not to be identified, the commission is investigating whether Robert Aguallo Jr. was negotiating to join Cardinal Americas in February while the system's board extended by six months the deadline for the firm to raise its first fund. Mr. Aguallo left the system in May.

In March 2007, the system voted to commit up to a maximum of $10 million to Cardinal's fund contingent on Cardinal raising at least $50 million from other investors by Feb. 27. Cardinal's fundraising target is $100 million

Mr. Aguallo could not be reached for comment.

LeeAnn Pelham, executive director of the Los Angeles City Ethics Commission, and Sally Choi, the system's current general manager, both said they could neither confirm nor deny the existence of an investigation.

“We are required to report in a timely manner potential wrongdoing within the Ethics Commission's jurisdiction to the Ethics Commission for appropriate action ... Any matters raised were referred to the Ethics Commission,” Ms Choi said.

Tom Moutes, the fund's assistant general manager, said that he was not aware of Mr. Aguallo's planned employment with Cardinal until he read an April 30 Cardinal press release. He referred all other questions to Ms. Choi.

Mr. Aguallo had announced in August 2007 that he would retire from the system in December. The system later allowed Mr. Aguallo to work for 90 days non-contiguously while it searched for a new general manager. He continued serving as general manager until he joined Cardinal Americas on April 30 as managing partner.

Mark Vargas, spokesman for Cardinal Americas, said he was not aware of any investigation and that the firm has not been contacted by the Ethics Commission.

The system's commitment to the fund is set to expire Aug. 27 unless Cardinal raises at least $50 million by that date, Ms. Choi said.

Three large public funds reported returns for their most recent fiscal years. Only one had a positive number.

The Florida Retirement System Pension Plan, Tallahassee, lost 4.42% on its investments in the year ended June 30, underperforming its customized benchmark of -3.35%, according to a statement by the Florida State Board of Administration, which oversees the $126.9 billion defined benefit fund.

The plan was 105% funded as of the same date, the statement said.

Its domestic equity portfolio returned -12.68%, less than one basis point better than its customized benchmark for domestic equity. For international equity, it returned -6.52%, beating its customized benchmark by 110 basis points.

Equity losses were offset somewhat by fixed income, which returned 5.1%, lagging the 7.12% of its customized benchmark; real estate, 8.69%, which also lagged its custom benchmark's 10.13%; and private equity, 7.52%, surpassing the -8.19% return of its customized benchmark.

The Massachusetts Pension Reserves Investment Management Board, Boston, returned -1.8% for the fund's latest fiscal year ended June 30.

Executive Director Michael Travaglini and state Treasurer Timothy Cahill credited ongoing efforts to diversify the $50.6 billion state fund's holdings for its ability to do better than the median 4.36% decline for public pension funds greater than $1 billion and the 13.5% drop in the benchmark S&P 500 index over the same period.

The $153.9 billion New York State Common Retirement Fund, Albany, posted a 2.56% return for the state's fiscal year ended March 31, Thomas DiNapoli, state comptroller and the fund's sole trustee, said at an Aug. 4 news briefing.

The fund saw positive returns in seven of its eight asset classes, led by gains of 24.8% in private equity and 14.8% in equity real estate. The one portfolio with a negative return — domestic equity — returned -6.4%. It comprises approximately 37% of the total fund.