FAQs Regarding LACERS Contract with DFA
Since the October 12, 2004 meeting of the LACERS Board, there has been some concern regarding the contract with Dimensional Fund Advisors (DFA), one of LACERS money managers and their relationship with Commissioner Shelley Smith. We want to take this opportunity to briefly explain the issues related to this matter.
LACERS Contract With DFA
Did the LACERS Board cancel the contract with DFA?
No. The Board did not cancel the contract with DFA. The current contract was due to expire on October 14, 2004. On October 5, 2004, DFA advised the Board that they did not wish to renew the contract and did not provide a reason for their decision. As a result, on October 12th the Board extended the contract for 120 days to allow for the orderly transition of the portfolio.
The City Attorney was present at the October 12th Board meeting and provided legal advice on the Board's ability to act on the contract. Commissioner Shelley Smith was not present and did not vote on extending the contract.
How long has DFA been under contract with LACERS?
The Fund has contracted with DFA to manage small cap domestic equities since 1994.
What is the value of DFA's portfolio compared to the entire LACERS Fund?
The total portfolio is valued at $7.9 billion. The DFA portfolio is valued at $318 million, which is less than 5% of the total Fund.
Effect on Investments
How much money will the Fund lose as a result of terminating the contract?
The amount of any losses or gains is unknown at this time as it is impossible to predict the markets. On October 12th, the Board approved staff's recommendation to extend the contract for 120 days to effect an orderly transition of the assets and minimize the costs of transition and market impacts.
The Board's decision represents the most prudent approach to handling this matter.
Will this situation affect my pension?
No. The transition of these assets will not have a material affect on your pension or the Fund's ability to make retirement benefit payments. The Fund is valued at $7.9 billion. The Fund increased by approximately $1 billion over last year and earned an 18.6% return.
Conflict of Interest
What is the nature of the issue involving Commissioner Shelley Smith?
Commissioner Smith notified the Board in 2001 that her husband was hired by DFA. Since that time only one issue involving DFA has arisen for Board consideration prior to the October 12th Board meeting; Commissioner Smith recused and absented herself from the Boardroom while this matter was considered.
Until 2004, the Board understood that a conflict could be avoided if the Commissioner stepped out of the room prior to any discussion. Recently, the City Attorney advised that neither the Board nor Commissioner Smith could participate in renewing the contract with DFA (per California Government Code section 1090).
Can the Board require Commissioner Shelley Smith to step down?
The Board has no authority to remove Commissioner Smith because she is an elected member of the Board.
Member Communications
October 27, 2004
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