Chief Investment Officer Monthly ReportInvestments has started preparing the annual AB2833 report...
Transcript of Chief Investment Officer Monthly ReportInvestments has started preparing the annual AB2833 report...
LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION
Chief Investment Officer Monthly Report
Board of Investments
October 14, 2020
Jonathan GrabelChief Investment Officer
2LACERA Investments
1. Market Environment
2. Portfolio Performance Update
3. Portfolio Structural Updates
4. Key Initiatives and Operational Updates
5. Commentary
6. Appendix
Table of Contents
3LACERA Investments
Market Environment
4LACERA Investments
Global Market Performance as of September 30, 2020
Source: Bloomberg*Global Equity Policy Benchmark - MSCI ACWI IMI Index **Investment Grade Bonds Policy Benchmark - Barclays U.S. Aggregate Bond Index
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Key Macro Indicators*
1. Bloomberg2. St. Louis Federal Reserve
3. FactSet4. FactSet
Sources:*The information on the “Key Macro Indicators” charts is the best available data as of 9/30/20 and may not reflect the current market and economic environment.
6LACERA Investments
Key Macro Indicators*
1. Bloomberg2. Bloomberg
3. Bloomberg4. Bloomberg & Federal Reserve
Sources:*The information on the “Key Macro Indicators” charts is the best available data as of 9/30/20 and may not reflect the current market and economic environment
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COVID-19 More than 34 million cases and 1 million deaths
worldwide Over 7 million cases in the U.S. Over 11 million cases in Brazil and India
7-day moving average of daily cases in the U.S. rose toover 42,000 on September 30th from recent low ofapproximately 34,000 registered during the month
The Fed left interest rates unchanged and isexpected keep interest rates near zerothrough 2023, perhaps longer
U.S. Dollar climbed higher after hitting a 2-year low in August
September Effect Historically, the most disappointing calendar month for
the U.S. stock market September marked the first losing month since the
COVID recovery rally in late March partly due to a tech-led correction Dow -2.3%, S&P 500 -3.9%, NASDAQ -5.2%
Recent Themes What to Watch
Market Themes and Notable Items to Watch
COVID-19 Global spread Treatment developments Lasting economic impact
Social and civil rights initiatives
Fiscal stimulus
Unemployment and consumer spending
Health of corporate balance sheets and credit availability
Real estate mortgage defaults
2020 U.S. elections and political dynamics U.S. Presidential campaigns are set to take center-stage
Geopolitical risks and trade arrangements
*Sources: Johns Hopkins University, Centers for Disease Control and Prevention, Reuters
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Portfolio Performance Update
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Total Fund Summary as of August 2020
1. Transition balances are included in each subcategory total, if applicable2. Final target weights effective as of 10/1/193. Private Equity market values reflect latest available and are adjusted for cash flows
4. Real Estate market values reflect a 3-month lag and best available values5. Hedge Fund market values reflect a 1-month lag6. Reflects net cash position for overlay investing
Monthly Return(% net)
Sharpe Ratio(3-Year Annualized)
Asset Allocation
Total Market Value($ billions)
Cash($ millions)
Growth49.8%Credit
10.3%
Real Assets & Inflation Hedges
16.0%
Risk Reduction & Mitigation
23.0%
Overlay Composite1.0%
50
55
60
65
70
61.6
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
807
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
3.0
0.0
0.5
1.0
1.5
2.0
2.5
0.7
Market Value1
($ millions)% ofTotal
FinalTarget2
TOTAL FUND 61,565 100.0%
Growth 30,629 49.8% 47.0%Global Equity 22,917 37.2% 35.0%
Private Equity3 7,024 11.4% 10.0%
Opportunistic Real Estate4 688 1.1% 2.0%
Credit 6,367 10.3% 12.0%High Yield 2,014 3.3% 3.0%
Bank Loans 2,335 3.8% 4.0%
Emerging Market Debt 840 1.4% 2.0%
Illiquid Credit3,4,5 1,176 1.9% 3.0%
Real Assets & Inflation Hedges 9,831 16.0% 17.0%Core & Value Added Real Estate4 4,688 7.6% 7.0%
Natural Resources & Commodities 2,299 3.7% 4.0%
Infrastructure 1,721 2.8% 3.0%
Treasury Inflation-Protected Securities 1,122 1.8% 3.0%
Risk Reduction & Mitigation 14,131 23.0% 24.0%Investment Grade Bonds 11,375 18.5% 19.0%
Diversified Hedge Fund Portfolio5 1,949 3.2% 4.0%
Cash 807 1.3% 1.0%
Overlay Composite6 606 1.0%
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Historical Net Performance as of August 2020*
1. Final target weights effective as of 10/1/192. Functional composites were adopted on 4/1/19
3. Market value differences between the sub-trusts and functional composites are due to operational cash
* Historical real estate valuations are currently under review, therefore August 2020 total fund, composite, and benchmark returns are preliminary
LACERA Pension Fund(net)
Historical Returns(net)
OPEB Master Trust Fund(net)
Historical Returns(net)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1 Month 3 Month FYTD 1 Year 3 Year 5 Year
Los Angeles County LACERA Superior Court
0.0
2.0
4.0
6.0
8.0
10.0
1 Month 3 Month FYTD 1 Year 3 Year 5 Year 10 Year
Total Fund Total Fund Custom BM
Market Value % of Final($ millions) Total Fund Target1 1 Month 3 Month FYTD 1 Year 3 Year 5 Year 10 Year
TOTAL FUND 61,565 100.0% 100.0% 3.0 7.7 6.1 8.1 7.2 8.0 8.5Total Fund Custom BM 2.8 6.8 6.7 9.3 7.7 8.3 8.87% Annual Hurdle Rate 0.57 1.71 1.13 7.00 7.00 7.00 7.00
Functional Composites2 1 Month 3 Month FYTD 1 Year
GROWTH 30,629 49.8% 47.0% 5.7 12.2 9.6 13.0Growth Custom BM 5.5 11.4 12.1 14.2
CREDIT 6,367 10.3% 12.0% 1.2 7.1 4.7 1.2Credit Custom BM 1.2 5.1 3.8 5.2
REAL ASSETS & INFLATION HEDGES 9,831 16.0% 17.0% 1.3 3.4 3.5 -0.5Real Assets & Inflation Hedges Custom BM 1.1 3.6 3.0 1.9
RISK REDUCTION & MITIGATION 14,131 23.0% 24.0% -0.4 2.3 1.4 6.4Risk Reduction & Mitigation Custom BM -0.6 1.2 0.6 5.8
OVERLAY COMPOSITE 606 1.0%
Market Value Trust FinalSub-Trusts ($ millions)3 Ownership % Target 1 Month 3 Month FYTD 1 Year 3 Year 5 Year
TOTAL OPEB MASTER TRUST 1,609Los Angeles County 1,554 96.6% 3.6 10.2 7.8 8.0 6.9 8.3LACERA 6 0.4% 3.6 10.1 7.8 8.0 6.9 8.3Superior Court 49 3.0% 3.6 10.2 7.8 7.8 6.7
Functional Composites 1 Month 3 Month FYTD 1 Year 3 Year
OPEB Growth 842 52.4% 50.0% 6.1 15.2 11.6 15.8 8.7Custom OPEB MT Growth Pool 6.1 15.1 11.6 15.4 8.4
OPEB Credit 306 19.0% 20.0% 0.8 4.5 3.8 1.7 Custom OPEB MT Credit Pool 1.0 5.0 4.0 2.2
OPEB Real Assets & Inflation Hedges 309 19.2% 20.0% 2.1 7.5 5.7 -6.4 Custom OPEB MT RA & IH Pool 2.0 7.4 5.6 -6.8
OPEB Risk Reduction & Mitigation 151 9.4% 10.0% -0.7 1.1 0.6 5.6 5.5Custom OPEB MT RR & M Pool -0.6 1.1 0.6 5.5 5.2
Operating Cash 0.2 0.0%
11LACERA Investments
Change In Fiduciary Net Position
Fiscal Year Negative Months Positive Months Total Net Position Change $FY-19 4 8 $1.9 billion FY-20 5 7 -FY-21 0 2 $2.6 billion
*Includes both unrealized and realized net investment income
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Portfolio Structural Updates
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Portfolio Structural Updates
Name RFP Issued
Due Diligence
BOI Review
Hedge Funds Emerging Manager Program Separate Account Manager
Anticipated Late 2020
High Yield Fixed Income Investment Management Services
Anticipated Late 2020
Transition Management Services Anticipated Late 2020
Dedicated Managed AccountServices Anticipated Early 2021
Real Estate Consultant Services Anticipated Early 2021
Status of Active Searches – Subject to Change Rebalancing Activity
Quiet Period for Search Respondents
Portfolio Movements Current Search Activity
Please see the Appendix for this month’s list of respondents to active searches
Hedges and Overlays
$10 millionCash
Cash$215 millionPublic Equity
Cash
Program AugustReturn
AugustGain/Loss
Inception*
Gain/Loss
Currency Hedge**
-0.6% -$45.5 Million $1.0 Billion
Cash/Rebalance Overlay***
1.5% $19.5 Million $31.6 Million
** LACERA’s currency hedge program’s 1-month return is calculated monthly whereas the monthly gain/loss amount for the same period is the net realized dollar amount at contract settlement over three monthly tranches*** LACERA’s overlay program’s 1-month return includes interest earned on the cash that supports the futures contracts
$42 million Cash
Real Estate
*Currency and overlay program inception dates are 8/2010 & 7/2019, respectively
$32 millionHedge Funds
Credit
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Key Initiatives and Operational Updates
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Notable Initiatives and Operational UpdatesKey Initiative Updates
Operational Updates Investments formed a “Back To Office” working group to develop plans to return to the office
Financial Analyst II & III searches
Public Equity, Real Assets and Portfolio Analytics (Corporate Governance)
Investments working with FASD on reviewing final drafts of the CAFR
Investments formed an Operational Due Diligence (“ODD”) Group to standardize and enhance ODD across the total Fund
Investments working on requests from external auditor
Investments has started preparing the annual AB2833 report
Manager/Consultant Updates The fund manager, Mr. Ali Nassiri of the Prologis European Logistics Fund has left the firm to pursue other interests. The
portfolio manager, Ms. Anoaneta Todorova who has been with Prologis since 2012, has been named the successor fundmanager. Staff is comfortable with the change and will continue to monitor the situation.
The StepStone Group Inc. went public on September 16, 2020 and began trading on the Nasdaq Global Select Market under theticker symbol “STEP.”
Onboarding process of new risk and performance system continues
Ongoing development of T.I.D.E. initiative
Continuous improvements to the business continuity plan
Investments working on internal audit requests for external
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Commentary
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Staff Charts of the Month*
Performance of Equity Indices Driven by Large Tech
* Submitted by the real estate team
Source: LaSalle, Bloomberg. Data to 30 September 2020
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Staff Charts of the Month*
U.S. Economic Recessions
* Submitted by the global equity team
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Appendix
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Quiet Period for Search RespondentsReal Estate Consultant Services
Albourne Callan, LLC Cambridge Associates Meketa Investment Group NEPC, LLC RCLCO Fund Advisors Stepstone Real Estate
Hedge Funds Emerging Manager Program Separate Account Manager Appomattox Advisory, Inc BlackRock, Inc Goldman Sachs Asset Management GCM Grosvenor New Alpha Asset Management PAAMCO Prisma, LLC The Rock Creek Group, LP Stable Asset Management
Dedicated Managed Account Services
Blueprint Capital Advisors HedgeMark Advisors LLC HFR Investments LLC Innocap Lighthouse Investment Partners LLC Lyxor Asset Management Man FRM Maples Group Monroe Capital Ultimus LeverPoint Private Fund Solutions Wilshire Associates Inc
Transition Management Bench Service Provider
Blackrock Institutional Trust Company, N.A. Citigroup Global Markets, Inc. Loop Capital Markets Macquarie Capital (USA) Inc. State Street Bank & Trust
High Yield Fixed Income Investment Management Services Advent Capital Alliance Bernstein Ares AXA Barings BlackRock Columbia Threadneedle Credit Suisse Crescent Capital HY DDJ Capital Eaton Vance Federated Hermes HPS Investment Partners JP Morgan KKR Loomis Sayles Lord Abbett MacKay Shields Mellon Morgan Stanley Muzinich Nomura Payden and Rygel PGIM PIMCO PineBridge Post Advisory Seix Advisors Shenkman Capital T. Row Price Van Eck Associates Wellington Western Asset Yorkville Asset Management