New Orleans Sewerage & Water Board will likely conduct searches in 2023 for active equity and fixed income managers to run a total of $76 million for its $205 million pension fund.
The searches are being proposed by investment consultant Marquette Associates as part of a multiphase program to implement the pension fund's new target allocation that had been approved in November 2021.
In a webcast of the board's Oct. 18 pension committee meeting, Kweku Obed, managing director of Marquette Associates, made a presentation that included the proposal to search for managers in 2023 to run about $52 million in active domestic core fixed income, $10 million in active domestic small-cap core equities, $8 million in active domestic midcap core equities and $6 million each in active international small-cap core equities and active emerging markets equities.
In November 2021, the board approved a new 10% target allocation for private equity funds of funds and a 7% target for global infrastructure and also approved the elimination of its 8% target for hedge funds because of "structural headwinds that have resulted in disappointing annualized returns and high fees," according to a presentation from investment consultant Marquette Associates included with Nov. 10, 2021, pension committee meeting materials.
Other changes were increases in the targets for domestic equities to 34% from 27%, international equities to 21% from 20% and the reductions of targets for fixed income to 25% from 36% and real assets to 3% from 9%.
Overall changes were recommended to bring the pension fund's expected 10-year annualized return up to 7.01% from 5.91%.
At its Oct. 18 meeting, the pension committee approved the first phase of implementation, which included investing $15 million in Cohen & Steers' Global Listed Infrastructure mutual fund and $7 million in the Fidelity Real Estate Index mutual fund. The investments are being funded by the full redemption of the board's $15 million investment in the Vanguard Real Estate Index exchange-traded fund and the reduction of $10 million from an active domestic core-plus fixed income separate account managed by Fidelity Institutional Asset Management, leaving it with about $58 million. The remaining $3 million of the redemptions are being allocated to cash.
Marquette Associates' proposed Phase Two of the asset allocation implementation, to be voted upon at a future meeting, consists of investing in three BNY Mellon AFL-CIO index commingled funds: $50 million in the BNYM AFL-CIO Large Cap index fund, $10 million in BNYM AFL-CIO Small Cap index fund and $8 million in BNYM AFL-CIO Mid Cap index fund.
Those investments would be funded by the termination of New South Capital's $28 million active domestic smidcap value equity portfolio; BlackRock's $18 million passive domestic large-cap growth equity portfolio; Barrow, Hanley, Mewhinney & Strauss' $14 million active domestic large-cap value equity portfolio; and the further reduction by $8 million from Fidelity Institutional Asset Management's core-plus fixed-income portfolio.
Within the pension fund's international equity portfolio, EARNEST Partners is the sole manager running a $44 million active international large-cap core equity portfolio. Mr. Obed did not say whether the manager would be invited to participate in the searches for the international small-cap core and emerging markets equity managers.
Specific timelines for the searches were not provided. Mr. Obed could not be immediately reached for further information.
As of Oct. 5, the pension fund's actual allocation was 32.9% fixed income, 29.3% domestic equities, 21.4% international equities, 9.1% hedge funds, 7.2% real estate and 0.1% cash equivalents.
