LACERS BOARD UPDATE
By Michael R. Wilkinson, LACERS Commissioner
LACERS’ investment consultant, NEPC, recently reported on our investment returns for the quarter ending Sept. 30, 2020. Again, as in the second quarter (ending June 30), the returns were strong. As you know, short-term returns, up or down, are not significant to the safety and financial security of the plan over the long term.
For the period ending Sept. 30, LACERS returned 6.19 percent for the last three months, 1.45 percent for the year to date, 6.84 percent for one year, 6.06 percent for three years, 8.17 percent for five years and 8.29 percent for 10 years, net of fees.
NEPC has compared LACERS’ returns to those of other public pension plans of $1 billion to $50 billion in size, and LACERS has delivered strong relative and absolute investment performance. Although investment returns and relative rankings continually change, over the 10-year period ending Sept. 30, LACERS’ investment performance ranked in the top 15 percent of our peer group and earned an annualized 8.29 percent rate of return, net of fees.
Again, I keep the push on to keep investment fees down and to control risk. LACERS uses passive investing (index funds) to get superior returns without paying high fees to active managers where this makes sense. Long-term investors use passive investments for certain asset classes like U.S. large cap equities, where active money managers struggle to keep up with passive funds after paying high management fees. LACERS overall invests 35 percent of its fund passively, with 84 percent of its U.S. equity investments in index funds. Non-US equity is 34 percent passive, and core fixed income is 21 percent passive.
I have asked the investment staff to be vigilant in seeking other opportunities to invest more in passive investments where LACERS would get better after fees returns. There are some asset classes, such as private equity, where passive investments are not available, but properly vetted active managers can deliver very attractive returns even after paying active management fees.
Finally, the plan and NEPC are keeping track of the economic effects of COVID-19. This is a turbulent time that has caused great financial hardships for many. However, the Board and the consultant are carefully evaluating the investment landscape to find opportunities for sound long-term investments that will produce good returns without taking on unnecessary risks.