Tennessee to add emerging markets equities, strategic lending

Tennessee Consolidated Retirement System, Nashville, will add emerging markets equities and strategic lending as new asset classes as a result of an asset-liability study, confirmed Blake Fontenay, spokesman for David H. Lillard Jr., state treasurer.

The new allocations, which the board of the $34.8 billion pension fund approved at a meeting Friday, are the result of an asset-liability study by investment consultant Strategic Investment Solutions.

Funding will come from reductions in equity and fixed income, with North American equities (U.S. and Canada), dropping to 37% from 40%, domestic fixed income to 29% from 34%, and international equities to 13% from 15%.

Target allocations to real estate, private equity and short-term investments remain unchanged at 7%, 3% and 1% respectively.

The changes assume the system's current long-term expected rate of return remains at 7%.

Raising the expected return to 7.25%, SIS recommends dropping domestic fixed income further to 29% and raising international equities to 15% and real estate to 10%. With an expected return of 7.5%, SIS recommends increasing North American equity to 42% and dropping domestic fixed income to 19%.

As of June 30, the pension fund's actual asset allocation was: 42.4% North American equities, 29.2% domestic fixed income, 13.6% international equities, 7.8% inflation-hedged fixed income, 3.9% real estate, 1.7% short-term investments, 1.0% international fixed income, and 0.4% private equity.

Michael Brakebill, chief investment officer, was not available by press time.