Michigan Municipal Employees’ Retirement System, Lansing, hired Janus Capital Group to manage $500 million in an active unconstrained U.S. core-plus bond strategy as part of a restructuring of the retirement system’s $2 billion fixed-income portfolio, said Jeb Burns, chief investment officer.
The new structure incorporates a core-satellite approach, with a $770 million core portfolio of very liquid, low-risk fixed-income securities that is not benchmark-constrained, Mr. Burns said, stressing that the portfolio is designed to “provide liquidity when we need it.”
Trustees at the $7 billion retirement system approved the change at a meeting last week.
MERS will terminate BlackRock, which runs $220 million in active U.S. core bonds, and Reams Asset Management, $270 million in active U.S. core-plus bonds, Mr. Burns said. He stressed that the terminations are part of the strategic revamp of the portfolio, not because of performance.
C.S. McKee will continue to manage $270 million in active U.S. core bonds.
Of the new core portfolio combination of Janus Capital and C.S. McKee, Mr. Burns said: “We think these two less-constrained managers are a very good complement to each other and will offer MERS downside protection, absolute capital preservation and … the partnership will help our internal staff with insight they will offer about capital markets.”
Within its “satellite” bond portfolio, which incorporates less-liquid fixed-income strategies, MERS committed $200 million to $300 million to Orchard Global Asset Management. The manager will invest in deals with banks to provide capital required to meet Tier 1 capital requirements. The Orchard fund will use a drawdown structure, Mr. Burns said, and MERS will be permitted to choose the deals in which it will invest. The funding source could not be learned.
The rest of the retirement system’s satellite fixed-income portfolio will remain unchanged, with TCW continuing to manage $350 million in emerging markets debt; First International Advisors retaining $320 million in active global bonds; Credit Suisse, $350 million in infrastructure; and Stone Harbor Investment Partners, $225 million in high yield.