From HedgeWorld:
The largest public pension in Los Angeles is investing $800 million in commodities over the next two years, a quarter in actively managed derivatives, as it tries to profit from markets that have frustrated many institutional investors.
The Los Angeles Fire and Police Pension System, with nearly $16 billion in assets, said it is allocating 5 percent of its money to commodities with investments that aim to maximize returns and minimize downside risks. That includes commodity futures, stocks and private equity.
One strategy is to put $200 million into an enhanced commodity index-based investing model it hopes will deliver gains above market expectations. The other is to invest in stocks of commodity-related firms and private equity partnerships in energy, agriculture, mining and healthcare.
Enhanced index-investing typically means actively buying and selling commodity futures contracts in a portfolio that otherwise passively follows a commodity index in the hope of profiting from price gains in underlying contracts.
"This is the first time the system has invested in commodities," William Raggio, interim general manager at LAFPP, told Reuters in an e-mail this week. "The board and staff thought over the long run, this (active) approach would provide better returns."
Fresh worries over inflation from U.S. monetary easing have recently pushed some state pensions to boost their exposure to commodities, whose prices traditionally rise over time. Vermont is one, planning to double the commodities allocation in its $3.7 billion retirement fund to 4 percent, state investment chief Stephen Rauth was quoted saying last month by Pensions & Investments Online, a trade publication.
But retirement funds are also moving away from the trend of passively investing in commodity indexes, a strategy that has cost them dearly during market downturns.
The $7.8 billion Municipal Employees Retirement System of Michigan demonstrated this last year, putting more money into actively-managed real assets such as cattle and sheep farms in Australia while trimming index-based exposure....MORE
