Louisiana State Employees’ Retirement System, Baton Rouge, is creating a global multisector/credit target allocation and increasing its target allocations to international small-cap equities and private equity as the result of an asset allocation review, Robert W. Beale, chief investment officer, said in an e-mail.
The $10.9 billion pension fund is creating a 4% target to global multisector/credit, renamed from the pension fund’s previous 2% opportunistic credit target. The allocation likely will be fully implemented in February, Mr. Beale said. The goal for the pension fund, which does not issue RFPs, is to look for up to two managers in that area.
Also, the pension fund is increasing its target to private equity to 14% from 13% and international small-cap equity to 5% from 3%.
Mr. Beale said staff and investment consultant NEPC will recommend a second international small-cap equity manager by year’s end. Mondrian Investment Partners is the sole current international small-cap equity manager, with a $300 million portfolio.
The pension fund is reducing targets to domestic large-cap equity to 14% from 15%, which will be taken from an internally managed S&P 500 index portfolio that had $1.3 billion in assets as of June 30, and domestic small-cap equity to 7% from 8%.
As a result of the reduction in the domestic small-cap equity target, the pension fund is terminating Thomson Horstmann & Bryant from a $130 million portfolio. Mr. Beale emphasized the termination was due to the structural change in asset allocation, not because of performance.
Mr. Beale said the pension fund also is eliminating its real assets/commodities target of 3% over the next nine to 10 months.
“This was an asset class we implemented as a type of protection against potential unexpected inflation due to the massive amounts of liquidity flooding the financial system over the past five to seven years,” Mr. Beale said. “The inflation did not occur, which actually greatly helped all other parts of the plan. Also, any increased demand for commodities over that time period was more than assimilated by production so no shortages occurred, driving up prices. We will take our time on (eliminating) this asset class, fully aware of the recent bottoming of commodity prices.”
The pension fund’s two commodities managers are Gresham Investment Management and Pinnacle Asset Management, which run portfolios of $101 million and $146 million, respectively.
Targets that remain unchanged are 15% international large-cap equity; 12% emerging markets equity; 8% absolute return; 7% risk parity; 4% each core fixed income, high-yield fixed income and domestic midcap equity; and 2% emerging markets debt.
As of June 30, the actual allocation was: 15% each domestic large-cap equity and international large-cap equity; 12% each emerging markets equity and private equity; 9% each absolute return and domestic small-cap equity; 7% risk parity; 4% each core fixed income, domestic midcap equity and high-yield fixed income; 3% international small-cap equity; 2% each, opportunistic credit and real assets; and 1% each cash equivalent and emerging markets debt.
Separately, the pension fund committed $50 million to Bernhard Capital Partners Energy Services Fund.