The investment committee of the New Mexico Public Employees Retirement Association approved a domestic equities restructure at a meeting last week. Amanda White spoke with the two joint acting CIOs, Joelle Mevi and Julian Baca, about the changes to the portfolio and the plans for the year including a fixed income and international equities review.
With a deliberate approach to each asset class review scheduled for the next year, and a chief investment officer search under way, the $10.5 billion New Mexico Public Employees Retirement Association has a big year planned.
Joelle Mevi, deputy director of investments and Julian Baca, deputy director of the alternatives investment program are jointly heading the investment division, holding the fort while the fund searches for a new chief investment officer following the retirement last year of the 13-year veteran Bob Gish.
Hiring a senior person is a challenge for the state which like other US states is struggling with funding and the hiring freeze and furloughs that go with it. When the appointment is made, the fund will have nine internal staff.
Last week its investment committee approved a domestic equity review which saw its large cap and small-mid cap passive mandates consolidated into Russell indices.
It also agreed to search for a large-cap growth active manager as well as two searches for a small-mid cap growth and value managers.
The allocation to US equities still has more than 50 per cent in passive but the most recent reorganisation saw a slightly higher allocation to active managers.
Within its international equities exposure the fund has about 67 per cent passive and Julian Baca says generally there is a preference to passive.
“We have had a tough time selecting active in the past,” he says.
Joelle Mevi says the selection of active managers has been a learning process and part of the problem for PERA was an over-reliance on past performance.
“We have selected fairly conservative managers that can protect on the downside but don’t take full advantage on the upside, we are struggling with that now.”
Baca says the fund has had a lot of active managers in the past and the board has been heavily involved, but that a better balance in managing strategies between those that are high conviction and not could be improved.
The fund has a portable alpha strategy, that fills an active bucket in US equities of about $600 million, where the alpha is a hedge fund portfolio and the beta is the S&P 500.
Overall PERA is close to its allocation targets with the funding of a $180 million AEFE value mandate in March or April balancing the slightly underweight international equities allocation.
The rough split of the fund’s asset allocation is 60 per cent equities, 25 per cent fixed income, and 15 per cent alternatives and deputy director of investments, Joelle Mevi says the fund has a high allocation to stocks.
“Diversification and reducing the stock exposure are on the agenda,” she says.
In the next calendar year a fixed-income structure study and an international equities study are also on the agenda.
The fixed-income allocation is entirely in domestic bonds with Barclays Global Investors managing the lion’s share alongside two core plus managers and a high yield manager.
“There will be discussion between the board and staff about a global fixed-income allocation,” Baca says.
The board and staff have an interactive relationship demonstrated by a board approval of an acceleration of the alternatives allocation last summer.
The fund aims to have an allocation of 15 per cent of portfolio invested in alternatives and is currently 1 per cent underweight in alternatives.
Within alternatives Baca says the target is to aim for 5 per cent in hedge funds, 5 per cent private equity, 3.5 per cent real estate and 1.5 per cent real assets.
The fund’s general consultant is RV Kuhns and alternatives consultant and gatekeeper is Cliffwater.
New Mexico PERA asset allocation year ending 2009
US equity 8 %
International equity 24 %
Fixed income 25 %
Alternative assets 13 %