When Jonathan Grabel, the CIO of Los Angeles County Employees Retirement Association since 2017, was bringing the management of co-investments in-house, he had part of his team travel to meet with private equity firms, institutional investors, and investment banks to learn about their approaches to internal investment committees, including voting on decisions.
If his team was going to directly identify and manage investments, Grabel said he needed to think about how decisions would be made and who would participate in them. In the end, Grabel decided he wouldn’t vote at all. His consent, of course, is needed at the end, but every professional that contributes to an investment decision, including junior staff, gets a vote. “That helps with everything from succession planning to pattern recognition to a kind of esprit de corps.”
Grabel didn’t want a system where the CIO and senior staff generated ideas and everyone else simply processed them. “I'm not putting a finger on the scale.”
It worked. Co-investments, which LACERA began with private equity in 2019 and now include all asset classes, have outperformed fund stakes.
For Grabel, co-investing was as much an organizational exercise as an investment strategy.
Grabel’s take on investment committees reflects something he saw repeatedly in private equity and later in public pensions: teams tend to emerge stronger from periods of stress. He wanted to build that at LACERA.
Despite a long bull market, the team was forged by events such as Brexit and the pandemic as well as the personal adversity many employees faced during the Los Angeles wildfires.
In addition to co-investments, the shift also required changing how staff thought about risk across the entire organization. He led the move from a traditional asset allocation strategy with seven categories to a functional framework where investments are grouped based on characteristics, such as equity risk.
Before the total portfolio approach became more common, Grabel overhauled how the portfolio itself was constructed in 2018. “We went to TPA lower case, as opposed to upper case. We want our equity to be equity, our credit to be credit” so the portfolio can be better diversified.
A third initiative was a strategic plan developed with the board in 2019 that, Grabel said, laid the groundwork for transforming the plan from “an allocator to a best in class investor.” Among the tenets was optimizing the investment model, making stewardship a priority, influencing fees and cost of capital, and enhancing operational effectiveness.
It was during the Global Financial Crisis that Grabel decided to return to his earlier passion for government that he had put aside during a career that included Arthur Andersen after he graduated from the University of Pennsylvania, the Swiss banks that were ultimately rolled into UBS, and 13 years at growth-oriented private equity firm Baker Capital. The crisis pushed him to become more “introspective” about what success meant and being present for his family.
Once he joined Montgomery County Public Schools, it clicked that the job combined his interest in government, investing, and ensuring he had “no two days that are alike.” From Montgomery Country, he moved to New Mexico PERA and then to LACERA.
When I asked him, what it was in his career that really made him smart, he quickly said, “I learned that investing is a really easy business until you lose money. And when it’s someone else's money, I think that's very grounding.”
But, Grabel said, organizations need to learn what went wrong, how to recover, and continue to invest and move beyond the potential paralysis of mistakes.
Jonathan Grabel will be honored at the 9th Annual Allocators’ Choice Awards at the Mandarin Oriental in New York on September 17.
