By David G. Barry
County Employees’ Retirement Association has gotten the green light to
expand its emerging investment manager program – both in size and in scope.
The ACERA board approved a series of changes to the 15-year-old program, most notably enabling it to double in size to 10%, adding absolute return and private credit to the list of investment sectors and allowing firms in the program with a third fund.
ACERA’s EIM program was designed to identify investment firms with the potential to add value to ACERA’s portfolio and that may not be identified in ACERA’s standard institutional investment manager search process. In materials presented to the board, the $11.4 billion pension plan said it “believes that some smaller investment firms may be able to generate superior performance due to increased market flexibility associated with smaller asset bases.”
For the first dozen or so years of the program, it focused only on public equities and fixed income with emphasis on public equities. Bivium Capital currently manages that program. In September 2019, ACERA amended the EIM policy to include private equity, real assets and real estate.
The EIM program was limited to 5% of the total fund. Under the new plan, it can grow to 10% over the next 10 years. It is currently at 5.4%, according to ACERA staff. The vote also changed firms that are eligible. Previously, it was limited to managers that were raising a first or second fund. Now, it can include those raising fund three. The one exception is private real estate, where there are no funds offering limits.
Managers are eligible for the program if they have no more than $5 billion of committed capital, including co-investments, in prior funds. Private real estate is again an exception – as managers in that segment cannot have more than $3 billion of invested capital.
The new policy also puts an emphasis on firms “graduating” to ACERA’s main program once they have exceeded the limits of the EIM program.
In addition to expanding the EIM program, ACERA’s board also approved staff to issue a request for proposal for a general investment consultant.
ACERA’s five-year contract with Verus is scheduled to end on May 31.
At a September Investment committee meeting, ACERA staff made clear that there are no concerns over its relationship with Verus. The goal of the RFP is to identify the best general investment consultant capable of serving the growing needs of ACERA’s fund. ACERA said it will look for a consultant who also has a real estate practice, capabilities and experience so that it may potentially expand its relationship to include real estate coverage should there be a future need.
The ACERA staff will work with Cortex Applied Research Inc. on the search.