By Muskan Arora
The $16.1B San Bernardino County Employees’ Retirement Association is bullish toward European debt, while pulling out of emerging market debt.
Within Europe, the pension plan is eyeing investments in yield-focused strategies.
The redirection comes as the plan moves to terminate PGIM Fixed Income’s Emerging Markets Debt Opportunities Fund, which manages $123.7M for the plan. The termination will be brought to the full Board for approval at its next meeting on August 7.
At a recent investment meeting, Jake Abbott, the pension plan’s investment officer, cited a loss of confidence among staff in the EM debt strategy’s ability to contribute meaningfully to the overall portfolio, noting EM currencies have seen headwinds for the entirety of the investment in this fund.
The emerging market debt has a target allocation of 6%. Following the termination, EM debt will be underweighted at about 4%.
SBCERA’s shift in focus raised questions about the currency headwinds in Europe. Louis Fiorino, a member of the plan’s Board of Trustees, questioned the logic behind the investment team’s plans to navigate challenges in the region.
In response, Abbott said SBCERA is “sticking with more developed economies” for a more stable investment landscape. “Given our other experience in European credit, there is potential for that to be hedged, either at the individual strategy level or via our hedging program,” he added. “Whereas in emerging markets, that’s not part of our hedge program, and it can be very expensive to do it on an individual strategy level.”
