Los Angeles City Employees' Retirement System's board temporarily modified its asset allocation and rebalancing policies, which includes allowing the staff to defer rebalancing its asset allocation if deemed appropriate, said Rodney June, CIO of the $15.1 billion pension fund, in an email.
The temporary policy change also allows the staff to keep up to 5%, up from a previous limit of 2%, in cash to increase liquidity. The staff will report to the board in six months on the status of the asset allocation and rebalancing policy waivers.
"The market conditions are unusual and volatility is well beyond historical norms," said a staff memo for the board's meeting Tuesday. "Staff believes that while extreme market volatility is present owing to the decline in the total portfolio value ... shoring up liquidity within the UCA (unallocated cash account) is important to ensure that LACERS can readily meet ongoing cash flow obligations of approximately $95 million per month."
LACERS had total assets of $17.3 billion as of March 9.
The memo also said suspending rebalancing during extreme periods of volatility is prudent.
"Understanding that an out-of -balance asset class due to large market swings may later 'self- balance' due to a stabilization of the market may help prevent premature rebalancing that may incur costly market impact and transaction costs," the memo said.
LACERS' general investment consultant NEPC assisted.
Separately, LACERS extended Neuberger Berman's $801.8 million active core fixed-income mandate for one year, until June 30, 2021, to allow pension fund officials to complete a manager search. LACERS launched the search in August, and Neuberger Berman rebid. Neuberger Berman has been on watch since March 2019 due to performance.
LACERS also renewed BlackRock's contract for three years to manage multiple passive strategies. BlackRock's investment objective is to fully replicate the risk and return characteristics of various equity and fixed-income benchmark indexes using quantitative techniques. Although LACERS has no assets in the strategy, pension fund officials renewed BlackRock's contract to allow LACERS to expediently gain exposure to various passive strategies when needed. BlackRock's contract was set to expire May 31.