Los Angeles City Employees’ Retirement System‘s board approved a staff request to allow it to keep more cash on hand during the market volatility arising from the coronavirus crisis, the pension confirmed to Buyouts.
After getting approval from the board Tuesday, staff will raise the amount it can hold in its Unallocated Cash Account from 2 percent to 5 percent, a break from the investment policy statement the board approved last year.
In a memo, staff said it felt allowing greater liquidity would be prudent, considering the pension’s value had dropped to $15.7 billion from $18.87 billion as of December 31, 2019.
“Shoring up liquidity within the UCA is important to ensure that LACERS can readily meet on-going cash flow obligations of approximately $95 million per month that includes retirement payroll, health insurance premiums, private market capital calls and staffing and operational expenses,” the memo said.
Staff also wrote that neither it nor general investment consultant NEPC felt the higher cash allocations would have any effect on LACERS’ “ability to further implement the current asset allocation initiatives.”
Staff will report back to the board in six months to recommend whether to extend the temporary change, with or without adjustments, or revert to the current policy weighting.
Staff left open the possibility of changing other asset allocations in response to the market volatility, but warned that it might be best to wait and see what happens.
“Understanding that an out-of-balance asset class due to large market swings may later ‘self-rebalance’ due to a stabilization of the market may help prevent a premature rebalancing that may incur costly market impact and transaction costs,” the memo said.
This reflected general advice from Todd Silverman of Meketa Investment Group, who told Buyouts that portfolio asset classes that may seem out of balance now may re-balance when the downturn begins to show up in private market valuations.
LACERS did not respond to a request for comment.
According to a separate report presented at the meeting, as of February 29, LACERS’ private equity portfolio was valued at $2.07 billion, making up 11.6 percent of its portfolio, well below its target of 14 percent.
The cash allocation as of this date was $130 million, making up 0.7 percent of the portfolio versus a 1 percent target and the 2 percent maximum. The full portfolio was valued at $17.94 billion.
Action Item: read LACERS’ March 24 meeting materials here.