Pension board approves April rebalancing, asks staff to seek core‑plus options while keeping high‑yield in place

The Elevate Pension Board on Tuesday approved a package of April rebalancing recommendations and voted to recommend updated investment targets to city council after reviewing the plan's first‑quarter report and manager lineup. The board approved reallocations that shift U.S. equity, international equity and fixed‑income weights, authorized taking $500,000 from the plan's Principal high‑yield holding to fund a not‑yet‑selected replacement, and asked staff and consultants to bring a core‑plus search back to the board for further consideration.

The board took the actions after hearing the quarterly market‑value and performance review from investment consultants. "We're estimating as of the March, you're paying about $85,973 annually to all these investment managers," said Darren, a staff member who presented the fee analysis. The fund started the quarter with just over $23 million, had net cash outflows of about $555,000, and ended the quarter with a market value of $22,377,508, the consultants reported.

Why it matters: the rebalancing and manager decisions determine the mix of assets that will back benefit payments and affect near‑term liquidity. Consultants told the board that a recent manager consolidation required by Principal replaced an older high‑yield vehicle with a different Principal product and that the change softened the urgency of a full manager replacement but still left a choice to make. The board voted to move forward with the consultants' recommendations while directing additional research on core‑plus fixed income strategies.

Most important facts: Consultants recommended and the board approved contributing $140,000 to the Vanguard S&P 500 fund and $80,000 to the iShares S&P small‑cap fund; taking $170,000 from the Vanguard Total International Fund, $10,000 from Vanguard Emerging Markets, and $40,000 from Vanguard International Small Cap; and replenishing the Principal core fixed‑income account with $500,000 (the account used for benefit payments). The trade list also proposed taking $500,000 from the Principal high‑yield account, moving $500,000 into a new high‑yield fund yet to be selected, and taking $500,000 from cash while leaving a cash buffer. The board approved the recommendations by voice vote.

Consultants' performance review and rationale: The total fund was down 0.4% for the quarter versus a benchmark down 0.5%, with mixed longer‑term results across asset classes. U.S. equity outperformed its benchmark for the quarter but lagged on longer horizons because of a prior small‑ and mid‑cap tilt; international equity results were mixed; and certain fixed‑income components (high yield and bank loans) dragged fixed income returns. Consultants said Principal's older high‑yield vehicle was shut down and merged into a new Principal product on Feb. 28, which reduced the immediacy of replacing Principal but left Nomura, Nuveen and JPMorgan as other candidates in the search.

Fees and liquidity: The consultant estimated total annual manager fees at about $85,973 (an aggregate expense ratio near 38 basis points), slightly above an industry median of 35 basis points. The board and consultants noted a recent large redemption from Principal's U.S. property fund that produced roughly $573,000 in cash during the quarter and that the city will contribute an expected property‑tax inflow in June the presenters described as roughly in the low‑hundreds of thousands.

Next steps and board direction: Board members asked the consultants to return with a core‑plus search and concrete alternatives for the high‑yield sleeve, including Nomura and Nuveen as possible picks and discussion of fees and historical excess‑return correlations. The consultants said Nomura has tended to post stronger long‑term returns in the sample set but that tradeoffs include strategy differences (for example, some managers include bank loans) and fee differences (Nomura was quoted at about 54 basis points in the discussion; Principal's new vehicle was cited at about 67). The board agreed to keep the Principal high‑yield exposure for now while staff prepares options for changing manager lineups and for council review of the revised investment guidelines.

The meeting also produced a formal motion to recommend the board's amended asset‑allocation and benchmark changes to city council; that motion passed by voice vote. Board members directed staff and consultants to: return with a core‑plus manager search, provide options for the high‑yield sleeve that account for existing bank‑loan exposure, and present updated benchmark language for approval by the board and recommendation to council.

A closing note: consultants said the plan's April estimated market value was about $22.25 million and that April's estimated return was down roughly 0.55%. The board scheduled follow‑up work for the August meeting and will refer the guideline changes to city council for final action.