Los Angeles City Employees' Retirement System expects to launch a search next year for an active non-U.S. small-cap value equity portfolio to run $160 million.
The selected manager would replace Bernzott Capital Advisors, which was terminated for management changes, according to a staff memo to the board.
The search will begin after the $20.3 billion pension plan completes an asset-liability study. The assets will be parked in a passive small-cap value equity portfolio by existing manager RhumbLine Advisers Limited Partnership. RhumbLine manages a total of $3.7 billion across multiple passive equity strategies, not including Bernzott's portfolio, for the system.
The LACERS board at its Nov. 24 meeting voted to begin the termination process for Bernzott because on Nov. 10, three key members of Bernzott's investment team — Thomas Derse, president and portfolio manager; Scott Larson, CIO and portfolio manager; and Ryan Ross, portfolio manager — abruptly resigned from the firm.
"These three individuals were integral to the investment process and the performance record of the small cap value equities strategy was largely attributed to them," according to a staff memo to the board.
Although LACERS put the firm on watch, staff and general investment consultant NEPC believed the situation required more immediate corrective action and warrants a contract termination, the memo said.
"Their sudden departure and the rebuilding of the investment team with new professionals that have limited experience with the strategy presents undue risk to LACERS," the memo showed.
Separately, the board renewed RhumbLine's contract to passively manage the $3.7 billion for five years until March 31, 2026.
LACERS also renewed for three years CenterSquare Investment Management's contract to manage a $207 million active U.S. real estate investment trust portfolio. The contract renewal expires March 31, 2024.
The board also adopted a 2021 strategic plan for its $2.2 billion private equity program in which LACERS would commit a total of $675 million to $750 million. Each commitment target size would be $50 million to $70 million, including three to five investments of up to $20 million each to emerging managers.
