L.P. Worcester May Grow Alts and Small Cap –

The Massachusetts-based City of Worcester Retirement System at its May 26 board meeting will discuss increasing its alternative allocation by $12 million, and its small-cap mandate by $38 million and will also consider reducing the fund’s international and fixed-income mandates said James DelSignore, city auditor and trustee of the $600 million fund. If the members agree to grow the alternative asset class, the fund may search for leveraged buyout managers, he said, but manager searches in the other asset classes were not as certain.

“We’ll be getting a little bit more aggressive with our equities,” DelSignore said. “But I don’t know if we will do a manager search in the equities or bond arena, but if we do [search] it will likely be for the alternatives.”

The city currently invests its 3%, or $18 million, alternative allocation in portfolios ranging from high-tech, biotech, mezzanine, international and general fund-of-funds.

John Haggerty of Maketa Investment Group of Braintree, Mass., recently completed an asset allocation study recommending the changes, but the board has not yet had a chance to review all the results or decide what they want to implement, DelSignore said. The board in December chose Maketa to conduct the study and also to review its manager roster.

Report Recommends 5%

The report recommends growing alternatives to 5% from 3%, increasing small-cap equities to 15% from 9%, reducing domestic fixed income to 25% or 20% from 27%, and reducing international equities, which has a 15% mandate, by an unspecified amount. The cash and high-yield bond allocation of 2% may also be dropped.

“With international, you don’t get the diversification that you used to … it seems to go up and down at the same pace as the local stocks,” DelSignore said. “The consultants are also high on [small cap], they think there are a lot of good opportunities there.”

DelSignore said that he did not know when the board would make its final decision on possible allocation changes or when any approved searches would be launched.

The remainder of the fund’s asset allocation mix is 10% real estate and 51% large cap, which is balanced between value and growth styles.