By Muskan Arora
Concerns over SEC-related departure of
Western Asset (WA) Management’s co-CIO Ken Leech has prompted the $6.6bn Fresno
County Employees Retirement System to find a replacement core-fixed income manager.
When the decision on November 6th
was finalized, consultant NEPC brought in Capital Research and Management Co.
and Loomis Sayles & Co. to make presentations to the board at the February
5th board meeting about their core fixed income strategies.
Along with key personal turnover, underperformance relative to the benchmark further ignited the board launching the search.
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Western Asset Management handled $326m or 4.9% of the pension plan’s portfolio, as of June 30. The other manager on the roster is J.P. Morgan Investment Management who handles 4.8% or $320m of the fund’s portfolio.
Problems in paradise started on August 21st,
when Western announced that its star portfolio manager and co-CIO Ken Leech had
taken a leave of absence immediately, after receiving a Wells notice from the
SEC.
A Wells notice indicates that the agency
plans to bring an enforcement action against the recipient.
Further, Fresno County deems this as a
right time to bring in these changes as last month, NEPC recommended the staff
to re-introduce TIPS, which would be funded by public equity and core bonds, to
increase diversification and lower downside risk.
With a funded ratio of 87%, these asset
allocation changes would mean a 1% reduction in core bonds to be funded towards
an increase in non-core.
As Western Asset Management faces scrutiny
over its trading practices, multiple allocators including the $22bn Ohio Bureau
of Workers’ Compensation has pulled around $750m from the manager.
In September the Chicago Teachers’ Pension
Fund also terminated the money manager who handled $568.5m for the pension plan.
Fresno County reported a return of a net 10.2%
for the fiscal year ended June 30, surpassing the benchmark return of 10%.
For its three, five and ten-year periods,
the system returned 3%, 6.8%, and 5.7% against the benchmark of 3.1%, 7.5%, and
5.9%.
