The Los Angeles City Employees’ Retirement System has terminated a large cap US equities manager, according to board meeting materials.
The $17.3 billion fund ended its contract with AJO due to performance issues, according to June documents. The manager, which had worked for the organization since 2001, had been placed “on-watch” since June 30, 2016. The current contract was set to end in October, but the pension plan decided to cut its losses early.
“As detailed in the performance section of the report, AJO’s overall relative performance has not improved through the approximate three-year watch period and continues to breach policy criteria,” the materials said.
Source: LACERS
AJO, which is benchmarked against the Russell 1000 Value Index, trailed nearly every year since the organization first hired it. It has outperformed the benchmark by only 20 basis points since inception.
AJO, which runs active quant strategies, managed $183 million of the plan’s assets as of April 30. It manages $21 billion in total client assets. Key personnel, strategies, philosophies, and process never changed during its contract with the Los Angeles fund.
The pension program’s AJO-managed assets will be transferred to a passive S&P 500 portfolio run by RhumbLine Advisers. That firm managed $3.2 billion as of March 31.
RhumbLine is also far cheaper than AJO as its annual passive fees for LACERS will be 0.5 basis points of the fund’s assets as of April 30, or $9,150. LACERS was paying AJO 30 basis points, or $549,000 per year.
AJO’s removal is in line with the fund’s “widely accepted view that US large-cap equity exposure should be implemented with passive management,” materials show.
Neither LACERS nor AJO could be reached for comment.
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Tags: AJO, Asset Management, LACERS, Los Angeles City Employees’ Retirement System, Pension