Message from Chief Investment Officer Rod June
The past 12 months has seen an unprecedented level of economic stimulus injected into the U.S. economy. While essential to a strong rebound recovery, these stimulus programs have the potential to lead to rising inflation. Is the Board of Administration concerned about inflation and how do they consider its impact on the LACERS investment program?
We know that inflation erodes purchasing power due to higher prices for goods and services; moderate levels of inflation are a sign of a healthy economy. But rising rates of inflation cause economic uncertainty, reduced capital investment, and slowing of economic growth.
Further, inflation is a key consideration when adjusting the LACERS investment asset weightings. For example, equity valuations may keep pace with rising inflation but bond valuations do not fare as well due to fixed income streams. Real assets, such as real estate and Treasury Inflation-Protected Securities (TIPS), generally outperform during inflationary periods, helping to protect the value of the investment portfolio.
The LACERS Board is currently discussing the impact of inflation (plus other key factors such as growth, liquidity, interest rates, and diversification) on the LACERS investment portfolio to ensure an optimal asset allocation policy that can deliver promised benefits to plan members and their beneficiaries well into the future