Allocation Adjustments Aim to Capture Long-Term Returns


Michael Wilkinson, LACERS/Legal Representative

By Michael R. Wilkinson, LACERS Commissioner

The LACERS Board adjusted its asset allocation investments mix to better attain the investment returns necessary to fund the plan.

The Board reviews the asset allocation every few years to see if it is measuring up to providing a sufficient investment return without taking undue risk. The adjustments the Board recently made working with our investment staff and general investment consultant, NEPC, seek to get better returns while increasing diversification.

One important factor for our asset mix is to ensure sufficient cash to pay pensions, healthcare costs and the plan’s operating expenses. Many of our investments are liquid, meaning they can be quickly converted to cash at a fair price, while others are illiquid long-term investments that cannot be quickly sold. Some of our highest-performing assets, such as private equity, are illiquid. The asset allocation chosen by the Board provides for ample liquid assets.

According to the projections provided to the Board, our new asset mix is targeting an annualized return of 7 percent over 30 years, equaling the assumed rate calculated by LACERS’ actuary and already approved by the Board.

While the newly adopted asset allocation is like our current asset allocation model, some fine tuning included: private equity, publicly traded equities, and private debt were increased 2 percent, 1 percent and 2 percent, respectively; and publicly traded fixed income and real assets were decreased by 4 percent and 1 percent, respectively.

In summary, the asset allocation has been adjusted to put LACERS in the best position to capture the strong long-term investment returns needed for our pension plan.