LACERS considering NEPC for consultant

The firm has recommended the pension increase its private debt investments.

Los Angeles City Employee Retirement System board is exclusively considering NEPC to advise its portfolio, meeting documents showed.

The LACERS investment committee has officially recommended the board approve NEPC for a general fund consulting job, according to a memorandum in the 23 May meeting agenda. NEPC, if approved, would work for the pension plan for five years.

The pension plan and the consultant firm have already negotiated a fee structure of an annual average fee of $481,000, the memo read.

LACERS had also considered Aon Hewitt Investment and Verus Advisory for the job before naming NEPC as the finalist.

The pension plan and consulting firm did not respond to requests for comment.

During the 9 May meeting, NEPC showed the board a sample recommendation to establish a private debt portfolio allocation and put it at 4 or 6 percent of LACERS’ $15 billion portfolio. The fund currently does not have such a bucket, instead investing in distressed debt from its private equity allocation.

Along with adding private debt, the pension plan should also reduce its targets for other asset classes, especially equity (65 percent), “which could lead to volatility in down markets”, a presentation slide read. The firm also recommended LACERS reduce its large allocation target (19 percent) for core bonds. “NEPC believes there are better fixed income asset classes that can fill this role,” the firm said in its presentation.

This reshuffling of asset class allocations would make it easier for the pension to achieve its goal of 7.5 percent annual returns, which is will not likely hit in the short-term with current targets, NEPC said.

Debt funds the California pension plan has already invested in include the ABRY Advanced Securities Fund III ($20 million), Glendon Opportunities Fund ($20 million) and EIG Energy Fund XVI ($25 million), PDI data shows.

NEPC is an institutional consulting firm headquartered in Boston that advises public and corporate pension funds, foundations, endowments, insurers and healthcare systems, among others.