Los Angeles County Employees Retirement Association's board adopted a new asset allocation, increasing illiquid assets to 32% from 19%, said Jonathan Grabel, CIO of the $67.9 billion Pasadena, Calif.-based plan.
The higher illiquidity asset allocation would increase expected volatility compared to the prior allocation, staff said Wednesday in a report to the board. But staff believes the corresponding rise in expected returns may justify the additional illiquidity and expected volatility, according to the report.
Specifically, the allocation increases private equity by 7 percentage points to 17%, non-core real estate by 1 percentage point to 4%, illiquid credit by 4 percentage points to 7%, infrastructure by 2 percentage points to 5%, hedge funds by 2 percentage points to 6%, and long-term government bonds by 5 percentage points to 5%.
The new strategic asset allocation cuts global equities by 3 percentage points to 32%, liquid credit by 5 percentage points to 4%, natural resources by 1 percentage point to 3%, and investment grade bonds by 12 percentage points to 7%.
Core real estate remains at 6%, treasury inflation-protected securities stays at 3% and cash equivalents is still at 1%.
LACERA officials expect to transition to the new strategic asset allocation between July 2021 and June 2023.
Separately, the board is expected to decide at its June meeting whether to launch two RFPs. A committee is recommending that LACERA launch an RFP for a manager for a $400 million private equity emerging manager discretionary separate account. J.P. Morgan Assets Management currently manages four separate allocations totaling $650 million of committed capital. The fourth $300 million commitment is projected to be fully invested by the end of the second quarter 2022. The new $400 million commitment is expected to be deployed over four years.
The board is also expected to determine whether to launch an RFP for U.S. equity, non-U.S. equity, and global equity emerging managers a combined up to $500 million. If the search is approved by the board, LACERA could up to three managers, depending on the types of strategies proposed/received and portfolio fit within the global equity portfolio. The search is being recommended to help build out its equity emerging manager program. Staff is also recommending that the board conduct a search for equity emerging managers every two years to bring the program allocation closer to the upper range of 5%.
LACERA's allocation to U.S. equity, non-U.S. equity, and global equity is up to 5% of its $25 billion global equity portfolio. The mandate size could potentially increase the program to 3% from 0.9% of its global equity portfolio.