Investment Committee Agenda REGULAR MEETING Chair: Sung Won Sohn TUESDAY, JUNE 11, 2019 Committee Members: Elizabeth Lee Nilza R. Serrano TIME: 9:30 A.M. Manager-Secretary: Neil M. Guglielmo MEETING LOCATION: Executive Assistant: Ani Ghoukassian LACERS Ken Spiker Boardroom Legal Counselor: City Attorney’s Office 202 West First Street, Suite 500 Retirement Benefits Division Los Angeles, CA 90012-4401 Sign Language Interpreters, Communication Access Real-Time Live Committee Meetings can be heard at: (213) 621-CITY Transcription, Assistive Listening Devices, or other auxiliary aids and/or (Metro), (818) 904-9450 (Valley), (310) 471-CITY (Westside), and services may be provided upon request. To ensure availability, you are (310) 547-CITY (San Pedro Area). advised to make your request at least 72 hours prior to the meeting you wish to attend. Due to difficulties in securing Sign Language Interpreters, five or more business days’ notice is strongly recommended. For additional information, please contact: Board of Administration Office at (213) 473-7169. I. PUBLIC COMMENTS ON MATTERS WITHIN THE COMMITTEE’S JURISDICTION II. APPROVAL OF MINUTES FOR THE INVESTMENT COMMITTEE MEETING OF MAY 14, 2019 AND POSSIBLE COMMITTEE ACTION III. CHIEF INVESTMENT OFFICER VERBAL REPORT IV. INVESTMENT MANAGER CONTRACT WITH AJO, LP REGARDING THE MANAGEMENT OF AN ACTIVE LARGE CAP VALUE PORTFOLIO AND POSSIBLE COMMITTEE ACTION V. PRIVATE CREDIT INVESTMENT MANAGER SEARCH FINALIST PRESENTATIONS AND POSSIBLE COMMITTEE ACTION VI. OTHER BUSINESS VII. NEXT MEETING: The next Regular Meeting of the Investment Committee is scheduled for Tuesday, July 9, 2019, in the LACERS Ken Spiker Boardroom, 202 West First Street, Suite 500, Los Angeles, CA 90012-4401. VIII. ADJOURNMENT 1 Board of Administration Agenda SPECIAL MEETING President: Cynthia M. Ruiz TUESDAY, JUNE 11, 2019 Vice President: Elizabeth L. Greenwood TIME: 9:30 A.M. Commissioners: Elizabeth Lee Sandra Lee MEETING LOCATION: Nilza R. Serrano Sung Won Sohn LACERS Ken Spiker Boardroom Michael R. Wilkinson 202 West First Street, Suite 500 Los Angeles, CA 90012-4401 Manager-Secretary: Neil M. Guglielmo Executive Assistant: Ani Ghoukassian Live Committee Meetings can be heard at: (213) 621-CITY (Metro), (818) 904-9450 (Valley), (310) 471-CITY (Westside), and (310) 547-CITY (San Pedro Area). Legal Counsel: City Attorney’s Office Retirement Benefits Division Sign Language Interpreters, Communication Access Real-Time Transcription, Assistive Listening Devices, or other auxiliary aids and/or services may be provided upon request. To ensure availability, you are advised to make your request at least 72 hours prior to the meeting you wish to attend. Due to difficulties in securing Sign Language Interpreters, five or more business days’ notice is strongly recommended. For additional information, please contact: Board of Administration Office at (213) 473-7169. I. PUBLIC COMMENTS ON MATTERS WITHIN THE COMMITTEE’S JURISDICTION II. APPROVAL OF MINUTES FOR THE INVESTMENT COMMITTEE MEETING OF MAY 14, 2019 AND POSSIBLE COMMITTEE ACTION III. CHIEF INVESTMENT OFFICER VERBAL REPORT IV. INVESTMENT MANAGER CONTRACT WITH AJO, LP REGARDING THE MANAGEMENT OF AN ACTIVE LARGE CAP VALUE PORTFOLIO AND POSSIBLE COMMITTEE ACTION V. PRIVATE CREDIT INVESTMENT MANAGER SEARCH FINALIST PRESENTATIONS AND POSSIBLE COMMITTEE ACTION VI. OTHER BUSINESS 2 VII. NEXT MEETING: The next Regular Meeting of the Investment Committee is scheduled for Tuesday, July 9, 2019, in the LACERS Ken Spiker Boardroom, 202 West First Street, Suite 500, Los Angeles, CA 90012-4401. VIII. ADJOURNMENT 3 MINUTES OF THE REGULAR MEETING INVESTMENT COMMITTEE BOARD OF ADMINISTRATION LOS ANGELES CITY EMPLOYEES' RETIREMENT SYSTEM LACERS Ken Spiker Boardroom 202 West First Street, Suite 500 Agenda of: June 11, 2019 Los Angeles, California Item No: II May 14, 2019 12:46 p.m. PRESENT: Acting Chair: Nilza R. Serrano Committee Members: ItemElizabeth Number Lee II Commissioner: Elizabeth L. Greenwood Manager-Secretary: Neil M. Guglielmo Executive Assistant: Ani Ghoukassian Legal Counselor: Joshua Geller ABSENT: Chair: Sung Won Sohn The Items in the Minutes are numbered to correspond with the Agenda. Commissioner Greenwood was present at the Investment Committee Meeting. Any votes will be taken by Committee Members only. I PUBLIC COMMENTS ON MATTERS WITHIN THE COMMITTEE’S JURISDICTION – Acting Chair Serrano asked if any persons wished to speak on matters within the Committee’s jurisdiction, to which there was no response and no public comment cards received. II APPROVAL OF MINUTES FOR THE INVESTMENT COMMITTEE MEETING OF APRIL 9, 2019 AND POSSIBLE COMMITTEE ACTION – A Motion to approve the minutes of April 9, 2019 was moved by Committee Member Elizabeth Lee, and adopted by the following vote: Ayes, Committee Member Elizabeth Lee and Acting Chair Serrano –2; Nays, None. III CHIEF INVESTMENT OFFICER VERBAL REPORT – Rod June, Chief Investment Officer, distributed the 12-month forward Investment Committee calendar. Future Investment Committee items include Private Credit Finalists and some Investment Manager Contracts coming forward. 1 IV PRESENTATION BY AQR CAPITAL MANAGEMENT, LLC REGARDING THE MANAGEMENT OF AN ACTIVE NON-U.S. SMALL CAP EQUITIES PORTFOLIO – Rodolfo Martell, Ph.D., Managing Director, Portfolio Management and Iwan Djanali, Vice President, Investor Relations with AQR Capital Management presented this item to the Committee. V INVESTMENT MANAGER CONTRACT WITH BARROW, HANLEY, MEWHINNEY & STRAUSS, LLC REGARDING THE MANAGEMENT OF AN ACTIVE NON-U.S. EQUITIES DEVELOPED MARKETS VALUE PORTFOLIO AND POSSIBLE COMMITTEE ACTION – Barbara Sandoval, Investment Officer II presented this item to the Committee. After discussion, the Committee directed staff to go back to the manager, try to lower the fees, and then reintroduce to the Committee. The Committee took no action. VI INVESTMENT MANAGER CONTRACT WITH LAZARD ASSET MANAGEMENT LLC REGARDING THE MANAGEMENT OF AN ACTIVE NON-U.S. EQUITIES DEVELOPED MARKETS CORE PORTFOLIO AND POSSIBLE COMMITTEE ACTION – Barbara Sandoval, Investment Officer II presented this item to the Committee. Committee Member Elizabeth Lee moved approval and adopted by the following vote: Ayes, Committee Member Elizabeth Lee and Acting Chair Serrano –2; Nays, None. VII INVESTMENT MANAGER CONTRACT WITH MFS INSTITUTIONAL ADVISORS, INC. REGARDING THE MANAGEMENT OF AN ACTIVE NON-U.S. EQUITIES DEVELOPED MARKETS GROWTH PORTFOLIO AND POSSIBLE COMMITTEE ACTION – Barbara Sandoval, Investment Officer II presented this item to the Committee. Committee Member Elizabeth Lee moved approval and adopted by the following vote: Ayes, Committee Member Elizabeth Lee and Acting Chair Serrano –2; Nays, None. Acting Chair Serrano recessed the Regular Meeting at 1:49 p.m. for a break and reconvened the Regular Meeting at 1:51 p.m. VIII CONTINUED DISCUSSION OF TACTICAL ASSET ALLOCATION PLAN AND POSSIBLE COMMITTEE ACTION – Rod June, Chief Investment Officer and Jimmy Wang, Investment Officer I presented this item to the Committee. Committee Member Elizabeth Lee moved approval and adopted by the following vote: Ayes, Committee Member Elizabeth Lee and Acting Chair Serrano –2; Nays, None. IX OTHER BUSINESS – There was no other business. X 2 NEXT MEETING – The next Regular Meeting of the Investment Committee is scheduled for Tuesday, June 11, 2019, in the LACERS Ken Spiker Boardroom, 202 West First Street, Suite 500, Los Angeles, CA 90012-4401. XI ADJOURNMENT – There being no further business before the Committee, Acting Chair Serrano adjourned the Meeting at 2:02 p.m. _________________________________ Nilza R. Serrano Acting Chair _________________________________ Neil M. Guglielmo Manager-Secretary 3 ATTACHMENT A To: Los Angeles City Employees’ Retirement System Investment Committee From: NEPC, LLC Date: June 11, 2019 Subject: AJO Partners – Large Cap Value Equities Contract Extension Recommendation NEPC recommends Los Angeles City Employees’ Retirement System (LACERS) terminate the contract that is currently in place with AJO Partners Ltd. (‘AJO’). AJO has been on ‘watch’ since July 25, 2016 pursuant to the LACERS’ Manager Monitoring Policy due to performance. Secondly, NEPC recommends simplifying the U.S. Equity program by moving the proceeds from AJO into a passively managed S&P 500 Index portfolio. Background AJO has been an active equity manager for LACERS since October 31, 2001. As of April 30, 2019 AJO managed $183.6 million, or 1.0% of Plan assets. The performance objective is to exceed the Russell 1000 Value Index, net of fees, by 2.0% over full market cycles; this objective has not been met over the trailing one-, three-, five- and 10-year trailing periods ended April 30, 2019. Additionally, the portfolio has trailed the benchmark for all time periods measured over the past ten years. AJO has been on ‘watch’ pursuant to LACERS Manager Monitoring Policy since June 25, 2016 for underperforming the benchmark in the five-year trailing return as well as having a negative five-year information ratio. NEPC does recognize that value-oriented strategies have underperformed the broader equity market significantly over that past 10 years, however, AJO’s benchmark accounts for this by comparing portfolio investment returns to the Russell 1000 Value Index. The firm is 100% employee-owned, with the founder Ted Aronson remaining an active owner and investment team member. Over the past ten years, Mr. Aronson has transitioned approximately 55% of the ownership of the firm to other active employees.