County pension fund eyes future stability, strength.

LACERA officials guard a portfolio worth $13 billion

Some 118,000 county employees, past employees and retirees -- clerks and janitors, nurses and sheriff's deputies, secretaries and school teachers included -- are getting a balanced investment service. Marsha Richter sees to that.

The chief executive officer of the Los Angeles County Employees Retirement Association (LACERA) oversees its $13 billion portfolio. "Preservation of capital tempers growth concern," she said, and overall "we target a 9-percent return."

Most of LACERA's billions are divided among stocks (55.6 percent in large, small and international equities), fixed income (38 percent in commercial and government bonds, certificates of deposit and treasury notes) and real estate (4 percent).

"Alternative" investments comprise 5 percent of the portfolio, including mergers, leveraged buyouts and venture capital, "the riskiest piece of our investing," the CEO noted, and the one for which they expect and demand the highest returns.

"We are definitely interested in growth so we can achieve fully funded status," Richter said.

Right now, LACERA is funded not only by its investment income, but by employer and employee contributions. Of its $1.6 million in 1993 revenues, $379,789 came from employer contributions and $159,406 from members.

Every permanent employee of the county working at least three-quarters time is automatically enrolled, Richter said. They are offered the choice, however, of being a contributing or non-contributing member, with the latter receiving far fewer of the fund's retirement, disability and death benefits. Contribution levels are determined by actuarial reports, the starting point for determining needs far out into the future, Richter explained.

"We're accumulating the money to meet the liabilities for all the people," she noted, taking into account the anticipated swell of baby boomer retirements. "Maybe five to 10 years out we'll be looking at that," Richter said.

In the meantime, the fund is absolutely self-sufficient, Richter said, with investment fees and administrative costs coming from its income, not taxpayers' pockets.

While considered part of county government with the country treasurer sitting on its board, it carries out its functions with managerial as well as fiscal independence. Begun in 1938, "it's considered a young plan," the fourth largest in California and one of the 50 largest in the world, Richter related.

And it's a picky one, too. Here's what Richter demands in an investments manager, the company making the daily buy and sell decisions on stocks, bonds, funds, notes, properties or other investment: "We want 10 years of actual live performance history in this area with above-benchmark performance."

Those demands are set out very specifically in the association's 23-page "Investment Policy and Guidelines Statement." It dictates the level of experience and performance each investment manager must bring, as Richter noted, and that their results be reviewed at least semi-annually.

It covers the types of instruments in which LACERA can and cannot invest (casinos, for example, in the real estate category and purchase of non-publicly traded stock in the equities sector). It sets out the plan's philosophy and objectives, primarily "the preservation of capital" and "results at least equal to those of comparable indices."

Among the 40 or so firms working under those guidelines at any given time are its 25-year equities managers, downtown-based Capital Guardian Trust Co., and one of its newest managers, the Brentwood-based real estate investments firm of Lowe Enterprises Inc.

None of them has a guaranteed lifetime relationship with LACERA. While the association looks toward maintaining long-term ties, "Everyone is on probation all the time," Richter commented. The guidelines set the terms.

Ted Leary, president of the subsidiary that will be placing the $100 million entrusted to him by LACERA's Board of Investments, related how his firm was chosen, according to those guidelines: One of the association's investment consultants had sent out a number of requests for proposals to investment firms like Leary's around the country. From the replies, eight firms were chosen for interview with the consultant and the board, based on the criteria Richter described.

At the end of the in-depth three-month selection process, Leary said, his firm and three others in its field were each chosen to manage $100 million in assets. He was not especially surprised at the outcome. "We're known as an opportunistic investment manager," he commented, adding that Lowe has also been investing money for the $5 billion Los Angeles City Fire and Police Pension Fund for two years.