US pension fund targets global EM equity via new mandate

The LA County Employees Retirement Association set Feb 15 local time as the deadline for a $250 million global EM equity mandate that would appeal to Asia-based managers.
US pension fund targets global EM equity via new mandate

Managers had until the end of February 15 (Los Angeles time) to meet an RFP deadline for a new global emerging markets equity mandate from the LA County Employees Retirement Association (Lacera).

Sources suggest the $37 billion fund, which administers the largest county retirement system in the US, would allocate up to $250 million to successful managers in what is a major push into the asset class.

The mandate would appeal to firms that run their global emerging market strategies from Asia, given the increasingly strong links between the East and West Pacific. The RFP also called for active, and not passive, management of the fund.

“This one is huge,” says one manager, who declined to be named.

However, as one AsianInvestor reader pointed out after we sent the story out as a news alert yesterday, assuming the pension fund's EM target is 5% of its portfolio, it still has a long way to go. "This is the toe in the water. That's the real story," he says.

According to the RFP, candidates needed to have at least $600 million in AUM as of the end of last year and the proposed product needed a seven-year track record.

Further, the RFP stated that “at least 60% of the proposed product’s quarterly rolling one-year excess returns over the last seven years ended December 31, 2011 (15 of 25 observations) must exceed the MSCI Emerging Markets (Net) Index by at least 50 basis points, net of fees”. The mandate will be benchmarked against the MSCI emerging Markets (Net) Index.

Two further requirements were that prospective managers had to be SEC-registered investment advisers and that they had to agree to adhere to the UN’s Principles for Responsible Investment. There will be close scrutiny of any managers who use placement agents in trying to win the mandate.

Lacera has been providing retirement and other benefits to eligible Los Angeles County employees since 1938. It is the largest county retirement system in the US, with 156,000 members and more than 54,000 benefit recipients, according to its website.

Its target allocation is 23% to US equity and 29% to non-US equity, 7% to private equity, 26% to US fixed income, 2% to cash or cash equivalents, 10% to real estate and 3% to commodities.

It manages its assets on a total return basis and implements its asset allocation policy through both active and passive investment managers.

The long-term performance objective to Lacera’s total fund is to exceed its policy benchmark by 10 to 15 basis points, net of fees, with a tracking error of less than 2%.

Grounds for manager termination include failure to comply with agreed guidelines or achieve performance objectives, major deviation from stated investment philosophy, loss of key personnel and evidence of unethical behaviour.

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