Los Angeles County Employees Retirement Association's board approved two searches, one for an actively managed high-yield fixed-income manager and another for a list of preapproved providers for transition management services, said Jonathan Grabel, CIO of the $57 billion pension fund.
Pasadena, Calif.-based LACERA expects to launch an RFP for a firm to manage more than $1 billion, or 3.3% of total plan assets, in an actively managed high-yield mandate by the end of August. Pension fund officials are launching the search as a result of a reorganization of its $5.6 billion credit portfolio that resulted in a 3% high yield allocation in January.
LACERA's target allocation to high yield is 3%, with a range of zero to 6%. Maintaining the high yield allocation to 3.3% is close to the midpoint of the asset class's target range. LACERA had $1.9 billion in high yield as of May 31.
The assets are temporarily being managed by LACERA fixed-income manager BlackRock in a passively managed high-yield exchange-traded fund until the search for an active high-yield manager is completed.
Selection is expected by the first quarter of 2021.
Separately, LACERA's board at its July 8 meeting voted to launch an RFP for a list or "bench" of transition managers that LACERA officials can hire when they need transition services. In the past, LACERA has used its existing managers to act as transition managers. Pension officials are launching the search because the pension plan has expanded into new asset classes and creating a bench of transition managers will prepare LACERA for changes resulting from its upcoming strategic asset allocation review.
LACERA expects to launch the RFP in the third quarter with a selection of a slate of transition managers by the end of 2020 or the beginning of 2021.
Staff will work with LACERA's general consultant, Meketa Investment Group, on both searches. The RFPs are expected to be posted on the LACERA website.
In other news, LACERA's staff reported that Meketa rescinded its 2021 fee increase of $20,000 for the pension plan, when the board approved a one-year contract extension on Jan. 10. Meketa's contract was set to expire Jan. 15.
"The comment made at the June 10 meeting about LACERA 'being placed over a barrel' highlighted for us, for the first time" how it looks for the consultant to request a fee increase just as the pension fund was about to launch an asset allocation review, said a Meketa memorandum for the board's July 8 meeting.
LACERA staff said in a June 10 memo requesting the board approve Meketa's contract extension and fee increase that searching for a new general investment consultant in a year when it was planning an asset allocation review would be "disruptive."
Meketa officials said in its memo to the board that they had requested the fee increase "to address the absence of fee clarity in the event the contract was extended by LACERA."
Nevertheless, "given the current financial environment," Meketa rescinded the fee increase with a view of addressing its fees and scope of work for LACERA in 2021.
