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Newsmakers

Los Angeles CIO Discusses Pension’s Unique Infrastructure Strategy

First-time approach to the asset class to utilize public-to-private.
By Elijah Owens

The Los Angeles County Employees’ Retirement Association’s (LACERA) chief investment officer is looking to lead the pension’s first foray into infrastructure investments, and staff recommended the pension hire DWS to manage a “Real Assets completion portfolio” in a separate account during a recent board meeting.

The $56.3 billion retirement system adopted a 2%, or $1.1 billion, allocation towards the asset class last year and issued an RFI for the mandate, which will also manage new natural resources investments, in August. After receiving 11 submissions, investment staff ranked the three highest proposers: DWS, Cohen & Steers, and BlackRock, according to a report.

“The pension is prioritizing reaching the targeted asset allocation for the new asset class through the completion portfolio such that it can reach the target weights for each asset class in its portfolio and prevent being overexposed to other asset classes,” the pension’s CIO, Jonathan Grabel, told CIO.

This would entail DWS being responsible for fulfilling the exposure initially through public markets equities pertaining to companies operating in infrastructure markets. “The team intends to draw down capital from the listed securities portfolio to fund private markets commitments as they are approved by the board,” Grabel added.

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Subsequently, Grabel and his team intend to reach a financial strategic allocation of approximately 1.0%, or $500 million, before the end of the year. “The new allocations will be funded by reductions in other asset classes as part of the implementation plan of the strategic asset allocation,” a report reads.

DWS’ Global Infrastructure Composite generated a cool 16.05% net return in 2017 on behalf of 25 institutional investors participating in its efforts, according to a report.

Infrastructure was the California Public Employees’ Retirement Systems’ highest-performing asset class in the 2017-2018 fiscal year, generating a 20.6% net return. The $77 billion Oregon Public Employees Retirement Fund recently vowed to invest in at least five infrastructure strategies last year, growing the portfolio from $1.3 billion to $2.4 billion.

Grabel joined LACERA in April 2017 after the prior CIO David Kushner resigned in 2015.

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Home > News > Research > Corporate Pensions Rebound After Q4 Decline
Research

Corporate Pensions Rebound After Q4 Decline

January effect helps boost asset returns and funded levels.

By Michael Katz

US corporate pension plans bounced back in January after a rough fourth quarter of 2018 as strong investment returns spurred a $19 billion increase in funded status during the month. 

The funding ratio for the Milliman 100 PFI Index, which analyzes the 100 largest US corporate pension plans, rose to 91.0% as of the end of January from 89.7% at the end of December, while the funding status deficit narrowed to $148 billion from $167 billion during the same period.

Zorast Wadia, co-author of the Milliman 100 PFI, said that corporate pension funding is back to the same level it was a year ago despite the market turbulence over the past few months.

“It feels like déjà vu: just like in 2018, the year is off to a great start, with strong asset performance and discount rates above 4%,” Wadia said in a release. “If both hold, we’ll be heading in the direction of full funding, but as history has shown, any uncertainty or market volatility could make this year another bumpy ride.”

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Milliman reported that the pension plans’ asset return in January was 3.35%, which outpaced every monthly asset return in 2018. The market value of assets grew by $46 billion to $1.505 trillion from $1.459 trillion at the end of December. This comes after the Milliman 100 PFI experienced its worst funding month of the year in December, with a $68 billion decline in funded status that was the result of a 1.49% investment loss and a drop in the corporate bond interest rates used to value pension liabilities.

The consulting firm forecast that the funded ratio could climb to 104% by the end of 2019 and 121% by the end of 2020 under an optimistic forecast that includes interest rates rising to 4.61% by the end of 2019 and 5.21% by the end of 2020, combined with annual asset returns of 10.8%. However, under a pessimistic forecast that includes a 3.51% and 2.91% discount rate at the end of 2019 and 2020, respectively, with 2.8% annual returns, Milliman said the funded ratio would fall to 85% by the end of 2019 and 79% by the end of 2020.

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