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Los Angeles County Employees Retirement Association (LACERA)

PRI reporting framework 2020

You are in Indirect – Manager Selection, Appointment and Monitoring » Selection

Selection

SAM 02. Selection processes (LE and FI)

02.1. Indicate what RI-related information your organisation typically covers in the majority of selection documentation for your external managers

Your organisation’s investment strategy and how ESG objectives relate to it

ESG incorporation requirements

ESG reporting requirements

Other

No RI information covered in the selection documentation

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Your organisation’s investment strategy and how ESG objectives relate to it
ESG incorporation requirements
ESG reporting requirements
Other
No RI information covered in the selection documentation

You selected an `Other` option in table SAM 02.1 above, please specify

LACERA incorporates questions in selection documents to assess the processes and resources managers use to identify and incorporate material ESG factors.

02.2. Explain how your organisation evaluates the investment manager’s ability to align between your investment strategy and their investment approach

Strategy

Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements

Assess the quality of investment policy and its references to ESG

Assess the investment approach and how ESG objectives are implemented in the investment process

Review the manager’s firm-level vs. product-level approach to RI

Assess the ESG definitions to be used

Other

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements
Assess the quality of investment policy and its reference to ESG
Assess the investment approach and how ESG objectives are implemented in the investment process
Review the manager’s firm-level vs. product-level approach to RI
Assess the ESG definitions to be used
Other
None of the above

ESG people/oversight

Assess ESG expertise of investment teams

Review the oversight and responsibilities of ESG implementation

Review how ESG implementation is incentivised

Review the manager’s RI-promotion efforts and engagement with the industry

Other

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Assess ESG expertise of investment teams
Review the oversight and responsibilities of ESG implementation
Review how is ESG implementation enforced /ensured
Review the manager’s RI-promotion efforts and engagement with the industry
Other
None of the above

Process/portfolio construction/investment valuation

Review the process for ensuring the quality of the ESG data used

Review and agree the use of ESG data in the investment decision making process

Review and agree the impact of ESG analysis on investment decisions

Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)

Review and agree manager’s ESG risk framework

Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives

Review how ESG materiality is evaluated by the manager

Review process for defining and communicating on ESG incidents

Review and agree ESG reporting frequency and detail

Other, specify

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Review the process for ensuring the quality of the ESG data used
Review and agree the use of ESG data in the investment decision making process
Review and agree the impact of ESG analysis on investment decisions
Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)
Review and agree manager’s ESG risk framework
Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives
Review how ESG materiality is evaluated by the manager
Review process for defining and communicating on ESG incidents
Review and agree ESG reporting frequency and detail
Other, specify
None of the above

If you select any `Other` option(s), specify

To the extent feasible, all manager agreements incorporate provisions by which LACERA may receive periodic reporting of managers' ESG and responsible investing practices and processes in order to enhance LACERA's capacity to regularly and prudently monitor managers' ESG and responsible investment practices.

02.3. Indicate the selection process and its ESG/RI components

          LACERA has developed an ESG assessment tool by which it assesses managers’ ESG incorporation practices for the specific investment mandate on a 5-point continuum, ranging from no ESG integration to advanced (or “leading”) practices. This assessment is incorporated into a multivariate manager scorecard, as discussed elsewhere, to take a holistic view of ESG integration as part of LACERA’s investment decisions.
        

02.4. When selecting external managers does your organisation set any of the following:

ESG performance development targets

ESG score

ESG weight

Real economy influence

Other RI considerations

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
ESG performance development targets
ESG score
ESG weight
Real world economy targets
Other RI considerations
None of the above

You selected an `Other` option in table SAM 02.4 above, please specify

LACERA evaluates the extent to which a manager has a defined approach or policies regarding ESG integration practices, integrates material ESG considerations into the portfolio construction process, and evaluates performance in searches. The assessment is incorporated into the overall evaluation and scoring of the manager’s investment process and the quality thereof.

LACERA has developed a multivariate "manager scorecard" by which LACERA measures and monitors external asset managers' quality and performance. The scorecard tracks four core pillars of each of LACERA's external managers:

(1) Performance of Individual Investment Mandate

(2) Operational Strength (including investment process, risk management and internal controls, and talent management)

(3) ESG Integration (assessing the extent to which material ESG factors are identified, assessed, and incorporated into risk/return analysis and portfolio construction and intended to reflect the continuum of emerging and evolving ESG best practices)

(4) Relationship Quality (including value added services and proportionality of LACERA's mandate to the firm's assets under management)

(5) Fees (relative to benchmark of median fees by asset category and/or investment structure)

To monitor the manager’s investment process, manager agreements incorporate an obligation on the part of the manager to report to LACERA on their ESG practices.

02.5. Describe how the ESG information reviewed and discussed affects the selection decision making process.[OPTIONAL]

          For listed equity and fixed income, respondents to the RFI/RFP processes are requested to provide policies and processes for addressing ESG considerations in the investment process. Property managers are required to consider and report on ESG considerations throughout the investment process. In all reviews, LACERA emphasizes managers’ capacity to provide compelling and convincing information about how their focus on ESG integration impacts the financial performance of the investment strategy, through either mitigating ESG risks or enhancing economic value.
        

SAM 03. Evaluating engagement and voting practices in manager selection (listed equity/fixed income)

03.1. Indicate how your organisation typically evaluates the manager’s active ownership practices in the majority of the manager selection process.

Engagement

Review the manager’s engagement policy 1

Review the manager’s engagement process (with examples and outcomes)

Ensure whether engagement outcomes feed back into the investment decision-making process

Other engagement issues in your selection process specify

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Review the manager’s engagement policy
Review the manager’s engagement process (with examples and outcomes)
Ensure whether engagement outcomes feed back into the investment decision-making process
Other engagement issues in your selection process specify

If you select `Other` option, specify

          LACERA evaluates to what extent proxy votes inform the investment managers' analysis, engagement, and investment decisions, including general alignment with LACERA's Corporate Governance Principles.
        

(Proxy) voting

Review the manager’s voting policy

Review the manager’s ability to align voting activities with clients’ specific voting policies

Review the manager’s process for informing clients about voting decisions

Ensure whether voting outcomes feed back into the investment decision-making process

Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale

Other voting issues in your selection process; specify

LE

Review the manager’s voting policy
Review the manager’s ability to align voting activities with clients’ specific voting policies
Review the manager’s process for informing clients about voting decisions
Ensure whether voting outcomes feed back into the investment decision-making process
Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale
Other active ownership voting issues in your selection process; specify

If you select any `Other` option(s), specify

          LACERA seeks to assess managers' internal controls concerning prospective proxy voting-related conflicts of interest.
        

03.2. Describe how you assess if the manager’s engagement approach is effective.

          LACERA assesses how managers’ engagement activities (including proxy voting activities) influence the firm’s security selection, weighting, and monitoring, impact on risk and return analysis, and the managers' capacity to demonstrate how they link ESG to economic performance.
        

03.3. Describe how you assess if the manager’s voting approach is effective/appropriate

          LACERA assesses the extent to which proxy voting is aligned with the firm's stated ESG commitment and integrated into the investment process, as well as the extent to which the firm’s voting record aligns with LACERA’s stated positions in our Corporate Governance Principles.
        

03.4. Additional information [OPTIONAL]

          
        

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