Contra Costa County Employees' Retirement Association, Concord, Calif., plans to terminate Parametric Portfolio Associates from managing a $115 million defensive equity portfolio, according to a memo from pension fund CIO Timothy Price to the plan's board of trustees.
The $11.4 billion pension fund plans to terminate the manager in the coming weeks, according to the memo included in Dec. 8 board meeting materials.
CCCERA hired Parametric in 2018 to run its volatility risk premium strategy within the pension fund's risk diversifying asset class.
Parametric's overall defensive equity strategy "offers liquid access to an alternative risk premia that is uncorrelated with traditional asset classes while helping diversify overall portfolio risk," according to the manager's website.
According to Mr. Price's memo, the VRP strategy sells a portfolio of S&P 500 put and call options and collects premiums from both options when "implied volatility exceeds realized volatility as the options expire out-of-the-money."
He said the decision to terminate the strategy is based on its proving to be more correlated to equity markets during sharp selloffs than originally anticipated, because both absolute and risk-adjusted returns based in part on U.S. Treasury exposure can be more "efficiently expressed in existing or new strategies," and because performance is below expectations.
Parametric spokeswoman Whitney Stradley declined to comment.
Mr. Price said the proceeds from the termination will be reallocated on an interim basis to other managers in the risk diversifying asset class.
Mr. Price has the delegated authority to complete the termination and does not require board approval. He notes in the memo that the board does have the authority to veto his decision at a later date if it determines the termination is not in the best interest of the plan.
As of Oct. 31, the actual allocation to the pension fund's risk diversifying asset class was 6.7%; the target is 7%.
Mr. Price and Gail Strohl, CCCERA's CEO, could not be immediately reached for further information.
