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Callan tells MCERA trustees to expect ~7% long‑run return; board reviews pending $8.6M funding and fee comparisons
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Summary
Callan presented 10-year capital market expectations (portfolio pre-alpha ~7.1% with ~12% volatility). Trustees were briefed on an $8.6 million pending funding to Kane Anderson and reviewed a fee-comparison showing MCERA's reported total expense ratio at about 57 bps (24 bps direct only). Trustees discussed passive vs. active implementation and reporting inconsistencies among California systems.
At the Mendocino County Board of Retirement’s Jan. 1 meeting, investment consultants from Callan presented the plan’s 10-year capital market expectations and reviewed recent performance, valuation measures and portfolio implications.
Callan said its methodology emphasizes a conservative bias toward mean reversion and long-run risk premiums. For the plan’s time horizon Callan presented 10-year expected returns: roughly 7.3% for U.S. equities, slightly higher for international equities, bonds near 5%, real estate around 6% and cash/T-bills near 3%. Aggregating those assumptions, Callan said the portfolio’s expected pre-alpha return is approximately 7.1% with an annualized standard deviation near 12.
Presenters noted valuation caution for U.S. large-cap equities (forward P/E roughly 22.8x versus a historical average near 17x) and highlighted that a handful of large companies account for a disproportionate share of market capitalization and earnings — a concentration risk trustees should watch.
On performance and operations, Retirement Financial/Investment Officer Robert Reveles reported an $8,600,000 pending trade to fund a commitment to Kane Anderson that had been raised before month end. Trustees were informed the funds were sent on the second (of the month) to satisfy the funding schedule.
The board also reviewed an investment-fee comparison across California retirement systems using ACTFAR/ACFR data. Staff identified Mendocino’s total reported investment expense at about 57 basis points (including indirect and imputed fees) and noted that if only direct, cash-fee items were counted, the ratio would be roughly 24 bps — a change that would materially improve comparative ranking. Trustees discussed reporting differences (benchmarks, passive vs. active implementation) and flagged specific systems (Marin, Merced) that may understate fees in public reports.
No formal investment actions were taken on Callan’s presentation; Callan characterized the session as informational and recommended ongoing monitoring of valuations, risk concentrations and manager implementation.
