The $15.5 billion pension fund at its meeting Wednesday approved the hiring following a review of its $3.15 billion international equity portfolio. Also Fidelity Institutional Asset Management was terminated from an $843 million active international core equity portfolio. Fidelity has been on watch for underperformance and personnel changes. Fidelity spokesman Adam Banker declined comment.
"An analysis of the asset class structure showed that these moves should improve the risk reward trade-off by lowering risk while boosting expected return. It also creates a more complementary mix of managers with lower correlations to one another," Mr. Graham said.
Harding Loevner originally was one of the finalists in a shortlist search for an active international equity manager to run about $750 million; Arrowstreet Capital was hired in March. Funding for that account came from a transition portfolio managed by Russell Investments since the termination of Thornburg Investment Management in 2014.
Fidelity also had been terminated from a $135 million active international small-cap equity portfolio in October, at the beginning of the review of the international equity portfolio.
The international equity allocation was 20.3% as of March 31, or $3.15 billion; the target is 16%.
Mr. Graham said that going forward, the international equity managers will be Arrowstreet Capital, which has a target of 30% of the overall international equity portfolio, or $744 million of the target allocation; Causeway Capital Management, 25%, or $620 million; Harding Loevner, 20%, or $496 million; Dimensional Fund Advisors, 15%, or $372 million; and Franklin Templeton Investments, 10%, or $248 million. Excess proceeds from the Fidelity terminations will go to other underweight asset classes as the pension fund works toward getting international equities to that 16Templeton Investments, 10%, or $248 million. Excess proceeds from the Fidelity terminations will go to other underweight asset classes as the pension fund works toward getting international equities to that 16% target.
Separately, the pension fund's board approved a change in the structure of its domestic equities portfolio, increasing the portable alpha portion of the portfolio to 60% from 50% and dropping traditional management to 40% from 50%. Mr. Graham said no hires or terminations will occur as a result of the change.