Los Angeles County Employees' Retirement Association, Pasadena, Calif., committed $200 million each to four firms for opportunistic multistrategy credit allocations, said David Kushner, chief investment officer of the $42 billion pension fund, in an e-mail.
The managers are Ares Management, Beach Point Capital Management, Oak Hill Advisors, and Bain Capital subsidiary Sankaty Advisors.
The board decided to continue monitoring one of the finalists, KKR's credit business, KKR Asset Management, for future possible investments, requiring separate board approval, due to the recent resignation of William Sonneborn, the head of KKR Asset Management.
Staffers plan to launch searches for securitized credit and non-U.S. opportunistic fixed income. No other information about the possible searches was available by press time.
The board issued an RFI last fall after raising its allocation to opportunistic credit to 25% from 5% last year, with the implementation plan adopted Oct. 10, 2012. These multistrategy opportunistic credit portfolios are designed to invest in non-traditional, alternative fixed income in hopes of producing higher returns — in the range of 8% to 10% net of fees — and greater diversification than traditional fixed income, according to a staff memo for the Sept. 11 board of investments meeting.
The primary risks of alternative fixed income — credit risk, illiquidity risk and modeling risk — differ from that of traditional bonds — primarily interest rate risk, the memo states.
Wilshire Associates, LACERA's general consultant, assisted.
Staff and Wilshire had divided the RFI respondents that successfully passed the pension fund's screens into four categories: loans (eight managers), convertible bonds (five managers), direct lending (five managers), and multistrategy (12 managers).
Staff plans to perform further due diligence on the remaining managers and return to the board at a future date with recommendations to hire additional managers in the loans, convertible bonds and direct lending categories.
Separately, the board committed an additional $100 million to LACERA's private equity emerging manager-of-managers program, which is run by J.P. Morgan Asset Management. The board had previously committed $150 million to the program.