Kansas City (Mo.) Police Retirement System and Civilian Employees' Retirement System of the Police Department of Kansas City hired Pacific Investment Management Co. to run a total of about $102 million in core-plus fixed income, said James Pyle, pension systems manager.
PIMCO will manage up to $88 million for the $835 million Police Retirement System and $14 million for the $134 million Civilian Employees' Retirement System.
The pension funds hired the manager following a fixed-income structure study by investment consultant RVK. The new structure is 65% core and 35% core-plus within the fixed-income target of 30% of the total assets of the pension funds. As a result, the pension funds terminated Brandywine Global Investment Management, which ran $66 million and $10 million, respectively, in global fixed income for the police and civilian plans, and Shenkman Capital Management, which ran $27 million and $4 million, respectively, in high-yield fixed-income for the plans. The remaining assets will go to rebalancing.
RVK recommended PIMCO Income Fund in board minutes because "in addition to investing in traditional core fixed income such as U.S. government and sovereign Treasuries, and investment-grade corporate debt, the fund also tactically invests in high-yield bonds, emerging markets debt, non-agency asset and mortgage-backed securities, non-U.S. developed markets debt, and bank loans," which is why they recommended redeeming the other two managers. RVK said "A modeled fixed-income portfolio with core-plus would generate better projected returns than the current portfolio with lower risk, lower tracking error, lower equity beta and greater yield. The total manager fee expenses would be about the same as the current portfolio," according to the minutes.
Also, the pension funds reduced the target to private equity to 2% from 5% to bring it in line to the actual allocation, and increased global equity to 37% from 35% and real estate to 11% from 10%. The targets to fixed income, absolute return and real return remain unchanged at 30%, 15% and 5%, respectively. The portfolio is being rebalanced to match the target allocation; no other managers will be terminated.