“Esme makes her peers better. She does the right thing and pushes us to follow her lead. It is great to watch how Esme manages change in a 360-degree manner. Her initiatives touch every asset category and investment strategy in our portfolio. Esme sets an example not just through hard work, but by working smart. LACERA is a better place and continuously improving with Esme’s multi-faceted contributions.”
—Jonathan Grabel, CIO, LACERA
Esmeralda del Bosque is a senior investment officer focusing on portfolio analytics at the Los Angeles County Employees’ Retirement Association (LACERA). She launched her institutional investing career after developing an affinity for the practice while working at Wilshire Associates, where she had the opportunity to work among a variety of different institutional investors, and became enthralled with the idea of working at the investment office of a local public pension plan.
That opportunity manifested itself with an opening at LACERA 14 years ago. del Bosque has had the opportunity to work across a spectrum of asset classes, including equities, fixed income, and commodities, and moved into her current role in December 2018. During her time at the fund, del Bosque has also been designated to lead projects catered to performance, compliance, risk, and operations. She finds this experience pivotal to her success in her current role, where she can leverage her knowledge base and fine tune it to apply to a total fund perspective.
She earned her ranking in this year’s NextGen due to her continued success at LACERA and ensuring the fund is working to the best of its ability to fulfill its fiduciary obligations to thousands of beneficiaries.
CIO: What did you think you understood before the COVID-19 crisis … and if, during the crisis you were proven wrong, what did you learn from it?
del Bosque: The importance of understanding the liquidity profile of a portfolio, along with having a defensive position as a source of immediate liquidity, is critical. Working for a public plan, the ability to meet the plan’s obligations is priority number one. As such, LACERA holds liquid positions within its cash and investment grade bond allocations. This type of liquidity has two essential roles: First, it is defensive, allowing the fund to weather a crisis and still have ample resources to pay the promised benefit to the plan’s members. Second, this liquidity enables the team to continue to fulfill board-approved investment commitments, rebalance to strategic policy weights, and serves as a source of funds if and when investment opportunities arise due to market dislocation.
Diversification is also crucial. Understanding how a portfolio reacts in these times will highlight how much or how little diversification a portfolio truly has.
CIO: What took you by surprise? What worked?
del Bosque: The fact that the crisis was due to a global health pandemic, the ensuing shelter-in-place orders, and how quickly the lockdown orders trickled through the global economy was surprising.
There are a couple of things that stand out to me in terms of what has worked. First, LACERA revised its strategic asset allocation in 2018, reducing the global equity allocation significantly to make room for a set of assets to diversify the Fund further. The policy adjustments and ensuing implementation of the new asset allocation were set at an opportune time.
Second, organizational changes were implemented quickly to allow the team to function at a high level in a new work from home environment. What has impressed me is the level of communication that exists among the team despite our physical distance.
CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market?
del Bosque: LACERA has made significant portfolio enhancements in the last couple of years. I believe that the timing of implementing these changes was optimal, providing elevated insight into the portfolio during this downturn.
In 2018, LACERA shifted the portfolio to a functional strategic asset allocation while also adding investment options that have increased the f und’ s diversification. The power of allocating assets via a functional structure is that assets are grouped by their risk and return drivers as opposed to a traditional asset class structure, allowing for a better understanding of the role different assets play in the portfolio from both a performance and diversification perspective.
The revised asset allocation also decreased the portfolio’s global equity exposure in order to add diversifying assets. For example, the revised allocation introduced a dedicated sleeve of real assets beyond real estate (natural resources, infrastructure, and TIPS). Adding that diversification should prove to be a very prudent decision over the long-term.
LACERA will be conducting an asset allocation review in the coming months, which will enhance the structure already built. No doubt, the lessons learned from the COVID-19 crisis will impact that exercise. As part of the review, I would like our investment team to analyze what worked/what did not work in our portfolio as well as investment operations.
CIO: What do you think will be the impact of COVID-19 on developing economies?
del Bosque: For any nation, the ability to test for, treat, and respond to the COVID-19 outbreak is imperative. The impact of COVID-19 will be more detrimental to emerging economies as opposed to the developed world. However, even within developing economies, there is a division between the more established countries versus those that are more vulnerable, population density, and age demographics withstanding. At face value, the emerging markets that are more established include those with a set rule of law, efficient policymakers and central banks, mature markets, stable currencies, and fiscal soundness. Those economies should fare much better in this crisis as opposed to those countries that lack these elements.
China’s ability to respond to the COVID-19 outbreak, albeit far from perfect, is a notable example. The government was able to mandate stringent lockdown orders as well as build 1,000-bed hospitals in a matter of days. A more vulnerable nation, with sub-par health services, weak government safety nets, and fragile infrastructure could not move that quickly.
CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities over the coming years?
del Bosque: The lockdown has made every part of our lives an online endeavor. I believe this has created entrenched habits that will continue long after COVID-19 is no longer a threat:
- Work/Education from home
- Streaming services (movies/TV/fitness)
- E-commerce (grocery, retail, restaurant)
- Tele-Health Care
- Supply chain reoptimization
- Bandwidth as critical infrastructure
Inevitably, some innovative developments in these areas (and more) will arise.
CIO: And professionally, where do you see the most exciting areas to specialize further over the coming years?
del Bosque: Risk Management. Post the great financial crisis, investment risk management was in vogue. I believe that another generation of risk management approaches will arise from the COVID-19 crisis. I look forward to reading that research.
CIO: What exercises have you found useful?
del Bosque:
- Meditation (at least 2x a day).
- Purposefully watching videos to laugh along with.
- Taking walks with my family and my typically hyperactive Weimaraner, Itzel.
CIO: Describe the weirdest interaction you’ve had with an asset manager.
del Bosque: I would not say it was weird but memorable in a positive way. We had a firm coming in for a request-for-proposal finalist interview at 8 a.m. sharp. We learned that the head PM’s luggage was lost en route from his NY-LAX flight and had no change of clothes. The PM researched Pasadena and saw that Target opened at 7 a.m. He was there as soon as the store opened to put together a last-minute suit. He made it to our office with ample time and calm as can be. He looked professionally dressed, too! If his client service team did not mention it, I would have never guessed what his morning was like. I think of this PM and his out-of-the-box thinking often.
