LACERS BOARD UPDATE
By Michael R. Wilkinson
Before we get to the LACERS Report, I want to mention the difficult time we all have ahead in dealing with the novel coronavirus outbreak. We may be affected ourselves or our friends and family may be fighting this disease. Many of us may have first responders as family members working to protect us all.
The LACERS Board of Administration recently held its first meeting under the governor’s stay at home order via teleconferencing. It was a little strange to be hooked up via a computer using Zoom software and able to see the fellow board members and staff, but not be in the same room. However, the LACERS staff did a great job with the technology, and the meeting went smoothly.
There was an important action taken to help the LACERS investment staff respond to the volatility of the financial markets. The Board approved increasing the maximum amount of cash in our investment portfolio from 2 to 5 percent. Why is this important? In normal times LACERS is fully invested in diversified investments and keeps enough cash for paying the retirees (yes, this is important!), capital calls for investments and other expenses as well as a reasonable cushion for unexpected events.
However, the current turbulent markets encouraged Chief Investment Officer Rod June to request the change in the cash allocation so that there will be enough cash to handle eight months of our cash requirements. The staff will use only the amount of the authority that is needed.
The argument against having a very high cash allocation when it is not necessary is that it is a drag on the investment returns since a cash account is very stable, but has a very low rate of investment return compared to other investment classes such as stocks, bonds and private equity.
The change is viewed as a temporary measure and will be reviewed in six months to decide if it is still needed. This review will ensure that we continue to get the highest investment returns that are prudent