Pension fund also allocates $900 million to 3 managers
Los Angeles County Employees Retirement Association, Pasadena, adopted a new asset allocation that reduces its targets to growth assets, and risk-reducing and mitigating assets, while boosting its target to credit, said Jonathan Grabel, chief investment officer for the $55.6 billion pension plan.
The changes, which could result in searches for new managers, lower the growth assets target to 47% from 53.1%; cut the target to risk-reducing and mitigating assets to 24% from 27.5%; increased the credit target to 12% from 7.3%; and raised the real assets and inflation hedges target to 17% from 12.1%, Mr. Grabel said.
LACERA is developing an implementation plan that could be launched as early as September. The first step in the implementation process is that the board in June is expected to determine the appropriate policy allocation ranges and benchmarks for the new asset allocation.
As part of the new asset allocation adopted at the May 9 board of investments meeting, changes were made within the growth assets category. The global equities suballocation dropped to 35% from 41.4% and opportunistic real estate rose to 2% from 1.7%. Private equity stayed the same at 10%.
All suballocations within the risk-reducing and mitigating assets category were reduced, with investment-grade bonds down to 19% from 21.2%; diversified hedge funds, to 4% from 4.3%; and cash, to 1% from 2%.
The credit allocation now also includes dedicated suballocations to high-yield bonds, bank loans and emerging markets debt that had been part of its fixed-income portfolio. Bank loans now accounts for 4%, from 1.8%; emerging markets debt is 2%, from 0.8%; and high yield is the same at 3%. Credit also includes 3% to illiquid credit — made up of credit hedge funds, real estate debt, and private debt strategies — from 1.7%.
Real assets and inflation hedges now includes new suballocations of 3% each to private infrastructure and Treasury inflation-protected securities; an increased suballocation to natural resources and commodities to 4%, from 2.8%; and a reduced suballocation to core and value-added real estate to 7%, from 9.3%.
Separately, LACERA invested or committed a total of up to $900 million with three managers.
Pension fund officials hired Quantitative Management Associates and Systematic Financial Management, to manage up to $400 million each in active U.S. small-cap equity separate account mandates. The pension fund hired the managers following an RFP in July.
A portion of the funding came from terminating two active smidcap equity managers — Cramer Rosenthal McGlynn, which managed $270 million, and Westwood Asset Management, which ran $250 million. The managers were terminated to enable LACERA to focus more on small-cap equities, an area where pension fund officials see better opportunities, Mr. Grabel said.
The pension fund also committed up to $100 million to AE Industrial Partners Fund II, a buyout fund that invests in aerospace, power generation and specialty industrial companies. This is LACERA's first commitment with the AE Industrial.