The Los Angeles County Employees Retirement Association (LACERA) is strategizing on how to construct a real assets allocation for the first time in its history, inclusive of natural resources, infrastructure, commodities. and TIPs.
A “Real Assets Structure Review” was recently presented to a committee in the retirement system and will head to the pension’s board of investment following reviews and any potential changes.
As of now, the structure review is working out how to invest in natural resources and infrastructure, defining sub-asset class allocation ranges, and how much to commit/invest to each asset class respectively every year until 2024.
The pacing plans, or the amount expected to be invested in natural resources and infrastructure each year, is tentatively defined below:
Source: LACERA
Institutions usually “pace” their investment plans out to provide vintage year diversification. Once complete, natural resources and infrastructure are intended to consummate private allocation targets of 4% and 3%, respectively.
To sustain the new infrastructure portfolio, the current structure review calls for a $500 million commitment to an open-ended infrastructure fund in 2020. It would be “possibly used as a larger anchor investment to gain early exposure to income-producing core infrastructure and agriculture,” in addition to closed-ended funds, which are expected to be the primary vehicle for obtaining exposures.
Other methods of exposure to infrastructure include direct investments, separately managed accounts, co-investments, and club investments.
The plan is expecting to fund these private investments in natural resources and infrastructure from public market completion and commodities portfolios.
The sub-asset allocation ranges are tentatively planned as follows:
Source: LACERA
LACERA is adopting these new allocations to provide assets that characterize income generation, inflation protection, and risk mitigation attributes while providing uncorrelated risk-adjusted returns complementary with the overall investment plan.
It also calls for “allocations to high-quality and diversifying managers gaining potential economies of scale and benefits and possible investment structuring leverage,” LACERA partner Albourne America said in a memo. “Albourne America LLC has reviewed the Structure Review and agrees with the recommendations.”
Chief Investment Officer Jonathan Grabel earlier this year discussed with CIO the pension’s intention to sell approximately $1 billion in real estate assets, due to being 2% overweight to the asset class. He also discussed LACERA’s infrastructure strategy in-depth.
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Tags: Alternative Assets, Infrastructure, LACERA, Los Angeles, Los Angeles County Employees Retirement Association, Natural Resources, Portfolio Management, Private Markets, Real Assets