LACERA Beefs Up Its Investment in Chinese Bioscience

The $54 billion Los Angeles County Employees Retirement Association (LACERA) is expanding its healthcare investments in China, seeking to benefit from exposure to the burgeoning health sector there.

The fund got the green light from its board to put $100 million into the LAV Bioscience Fund V. The fund is part of Lilly Asia Ventures, the previous Asian venture capital arm of US pharmaceutical giant Eli Lilly that is now independent.

Previously, the pension plan invested $40 million in LAV’s fourth fund, according to a December memo obtained by CIO.

LACERA staff and the StepStone Group conducted independent due diligence on the fifth bioscience fund.

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The fund said this new commitment will help increase its exposure and growth equity strategy, which is about 14% of the private equity program’s net asset value. LACERA wants to raise that to between 15% and 30% of the PE section.

At the same time, it increases LACERA’s healthcare and emerging market exposure, specifically in China.

“China currently is the fastest-growing major healthcare market in the world with a five-year compound annual growth rate of 17%, compared to just 4% in the US,” read the memo. “Moreover, staff views the healthcare sector as attractive given its non-cyclical nature, which should help stabilize the portfolio during economic downturns.”

LACERA’s private equity holdings currently sit at 10.4% of its portfolio. The stake aims to return 200 basis points annually above the benchmark, the MSCI ACWI IMI index. Its trust’s current exposure to China is less than half that of the nation’s country weighting in the IMI, which LACERA uses as its global equity benchmark.

The memo discusses risks that the Chinese investments run: ongoing trade disputes between Washington and Beijing, human rights, pollution, and China’s autocratic government. But the most pertinent question was “whether LACERA will be adequately compensated for the risks taken” from investing there.

Jonathan Grabel, the pension plan’s chief investment officer, told CIO that “the overarching discussion is what’s the best way to gain exposure to a geography and/or an industry, being aware of fees and liquidity. In this case, the best way to gain exposure to an underrepresented area of our portfolio is through a private market investment.”

At its January 9 board meeting, the fund also said it plans to invest $250 million in international real estate funds, specifically in Europe, Latin America, and—you guessed it—Asia.

As of September 30, LACERA’s asset mix was 24.6% US equity, 21.9% non-US equity, 24.6% fixed income, 11.1% real estate, 10.4% private equity, 2.8% hedge funds, 2.4% commodities, and 2.1% cash.

Tags: China, Jonathan Grabel, Lilly Asia Ventures, Los Angeles County Employees Retirement Association (LACERA), Pension

Canadian diversified pooled fund managers posted a median loss of 5.6% before management fees in the last quarter 2018, which led to a loss of 2.7% for the year, 0.4% under the benchmark portfolio, according to human resources services company Morneau Shepell.

“Pension fund solvency liability was up slightly, remaining relatively stable compared to the beginning of 2018,” Jean Bergeron, head of Morneau Shepell’s asset and risk management consulting team, said in a release. “However, given the negative returns, pension fund financial positions on a solvency basis have deteriorated.”

Bergeron said the solvency ratio for an average Canadian pension plan had fallen by about 2.0% to 3.5% since the beginning of the year.

In Q4, Canadian equity managers had an average loss of 9.8%, which was 0.3% higher than the 10.1% posted by the S&P/TSX Index. For the year, the S&P/TSX Small Cap Index lost 18.2%, while the S&P/TSX Completion Index representing mid-cap stocks fell 12.9%, and the large-cap S&P/TSX 60 Index was down 7.6%.

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The bond market posted a return of 1.4%, while the Canadian equity S&P/TSX composite index posted a loss of 8.9%, and the US equity S&P 500 index dropped 4.4% in US dollars.

“This lackluster performance was offset by the depreciation of the Canadian dollar, which upped the return in Canadian dollars to 4.0%,” said Bergeron.

Canadian managers saw a median return of 1.6% on bonds in Q4, which underperformed the benchmark index by 0.2%. However, since the beginning of 2018, managers had a median return of 1.5%, which was 0.1% above the benchmark index. The long-term bond index posted a return of 0.3% for the year, while mid-term and short-term bond indices returned 1.9%. The high-yield bond index posted a 2.1% return, while real return bond index provided a 0.0% return.

The results from Morneau Shepell are based on the returns provided by portfolio managers, including independent investment management firms, insurance companies, trust companies, and financial institutions. The returns are calculated before deduction of management fees.

Tags: 2018 Returns, Canada, Morneau Shepell, Pension