The Los Angeles County Employees Retirement Association laid out its plan to make its first infrastructure investments in 2019, after deciding to diversify its real-assets exposure earlier this year, according to board-meeting documents.
The $56 billion pension is preparing to issue a request for proposals in September to find a portfolio manager for new investments in infrastructure and natural resources, the documents state.
LACERA’s plan – after approving in May an initial 3 percent allocation for infrastructure and 4 percent for natural resources – is to hire a portfolio manager by next January or February. That manager will invest in publicly traded liquid assets until cashflows eventually shift to private funds.
“The portfolio will later be drawn down over time to provide proceeds for private fund investments in infrastructure and natural resources sub-strategies,” the documents state. “Private investments will be considered in 2019.”
Based on LACERA’s current overall portfolio, a 3 percent infrastructure allocation means around $1.56 billion of investments. Four percent for natural resources means around $2.08 billion.
The US pension is acting on recommendations made by its general consultant Meketa Investment Group in March to “enhance the fund’s risk-adjusted returns” through new investment strategies. Meketa presented a 6.6 percent projected 10-year net return for infrastructure, including both core and non-core.
John McClelland, LACERA’s principal investment officer for real estate previously wrote in a 2013 memorandum that infrastructure at that time was too risky and lacked reliable benchmarks to develop a dedicated strategy. Brownfield infrastructure “may present a viable option to consider once there is more proven performance and a developed marketplace,” McClelland said.