Los Angeles Fire & Police Pensions' board Thursday approved a 2020-21 budget that includes a 7% increase in investment management expense to $114 million, amounting to 7.9% of proposed expenditures in the budget.
The investment-management expense includes a 10.5% increase for private equity to $46 million, a result of a rise in commitments to the asset class.
On an actuarial basis, the $23.6 billion LAFPP is 93.6% funded for pension benefits, for the fiscal year ending June 30, agenda materials showed.
Separately, the board adopted a business plan that includes adopting an operations strategy in light of changes caused by the coronavirus crisis. It includes creating a plan to achieve a new asset allocation target, which would include three searches as early as in December.
LAFPP is in the process of conducting an asset allocation study. Ray Ciranna, general manager of the Los Angeles Fire & Police Pensions told the board that its general investment consultant RVK is reconsidering its capital market assumptions in light of the coronavirus and market volatility.
RVK is expected to provide information on any capital market changes at the pension plan's April 2 meeting.
CIO Thomas Lopez told the board that since the first of the year, the pension plan has lost 20% of its assets.
"The good news is that we went into the bear market with a lot more cash" than the typical pension plan, Mr. Lopez said. "We deployed the cash into asset classes that had fallen dramatically."
In response to questions by the board member, Mr. Lopez said that using the pension plan’s real estate investment trust portfolio as a proxy for private real estate, the real estate portfolio could have dropped by about 20%. Since real estate and private equity data are lagged, pension officials aren’t likely to see the valuation changes until about June, he said.
Regarding private equity, Mr. Lopez said that although pension officials are still seeing a normal amount of capital calls, they are hearing anecdotally that deals are being put on hold and auctions are being postponed. The result is that pension plan may get fewer distributions from private equity managers.
"We are expecting that and are prepared for it," Mr. Lopez said.
