During a recent Board of Administration meeting, the $26B Los Angeles City Employees’ Retirement System (LACERS) reviewed an implementation plan for its new 5% infrastructure allocation, which aims to enhance portfolio diversification through mature public assets such as transportation networks, utilities, and energy infrastructure.
The allocation, approved last December, marks LACERS’ latest move to broaden exposure to real assets. At the meeting, the pension fund’s consultant, NEPC, presented a framework centered on publicly listed infrastructure investments.
NEPC senior consultant DeAnna Ingram Jones recommended LACERS take a core-satellite approach that would split the allocation between 60% passively managed and 40% actively managed listed infrastructure strategies. LACERS selected the S&P Global Infrastructure Index for its program, which comprises 75 publicly listed infrastructure companies across energy, utilities, and transportation sectors.
Jones noted the index represents the largest benchmark for the population, is widely used, and is conservative from a risk perspective. However, she added that the index’s sector caps — 20% in energy, 40% in transportation, and 40% in utilities — could limit exposure to infrastructure mega trends that are typically more accessible through active management.
“We want you to get exposure to things like digital technology,” she said. “And that’s where an active manager will come and be able to be helpful from a diversification standpoint.”
Data shows some high-performing infrastructure managers have outperformed the benchmark, said Jones.
A decision on the 60/40 split between passive and active management was put on hold until staff has reviewed the manager universe.
When asked, Jones said the program’s overall goal was diversification and risk mitigation. “Infrastructure is about diversification,” she said. “So, to diversify the portfolio from some of the downturns in your equity and fixed income portfolio — it’s an inflation hedge and a diversifier.”
Because the assets would be entirely publicly listed, Jones said LACERS would be able to use daily valuations and traditional risk metrics such as standard deviation. She also pointed out that public infrastructure provides greater transparency and easier performance tracking compared to private assets.
As well, she noted that if the board considers private infrastructure in the future, risk would vary depending on the strategy.
“If you’re invested in core infrastructure, which is normally utilities, a smaller sleeve of energy — more conservative by nature — that risk will look very different versus if you’re investing in . . . digital technologies or energies where there’s more volatility within that sector.”
For now, she reiterated, the initial exposure will be 100% publicly traded, with flexibility to evolve over time.
