LACERS makes changes to asset allocation, Axes 2 bond managers

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City of Los Angeles Employees Retirement System adopted a new asset allocation on Tuesday, increasing private equity by 2 percentage points to 16%.

Within public equities, the board of the $21.8 billion pension fund also increased the allocation by 1 percentage point to 47%. Within public stocks, domestic large cap stocks, domestic small cap stocks and emerging market stocks rose 1 percentage point to 15%, 6% and 6.7%, respectively. Non-U.S. developed market equities were cut 2 percentage points to 15%.

Fixed income securities were reduced by 2 percentage points to 24%. Changes to the fixed income portfolio included a 2 percentage point increase in private debt to 5.75%, a reduction in core bonds by 2.5 percentage points to 11.25% and a reduction in high-yield loans and domestic leveraged loans of half a percentage point each, both for 1.5%. Emerging market debt and local currency emerging market debt were each reduced by a quarter of a percentage point, both to 2%.

LACERS eliminated its dedicated allocation to commodities by 1.2%, while increasing its allocation to domestic real estate investment trusts to 1.4% from 1.2%. All other sectors of the LACERS real asset allocation remained the same, resulting in a 1 percentage point drop in real assets to 12.4%.

LACERS retained its cash allocation of 1%.

In addition, LACERS terminated two fixed income managers, Neuberger Bermanwhich managed an active core portfolio of $856 million, and LM Capital Groupwhich managed an active domestic fixed income portfolio of $353 million.

The two companies had re-bid in a LACERS tender launched at the end of 2019 for core fixed income securities. Five managers were awarded contracts in January 2021, but no company was selected. Neuberger Berman was one of seven finalists. Staff recommended the termination so they could transfer the assets of Neuberger Berman and LM Capital to the new executives.

LM Capital said in a statement that executives were disappointed the board had ended its 16-year relationship with LACERS.

“Although performance was below the LACERS benchmark in 2018, the consultant’s latest report to the board showed that LM Capital significantly exceeded benchmark performance targets for all reporting periods,” the statement said. The termination decision was based on a search for managers in 2019 and so the board could not take into account his most recent performance, LM Capital noted.

“We look forward to competing for other opportunities with LACERS in the future,” the company said.

Neuberger Berman spokesman Alexander Samuelson declined to comment.

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