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Arizona State Retirement lifts private debt allocation, lowers high yield

Arizona State Retirement System, Phoenix, is increasing its target allocation to private debt to 12% from 10%, said David Cannella, pension fund spokesman, in an email.

The $35.5 billion pension fund's board at its Feb. 24 meeting also approved expanding private debt's range to 8% to 16% from 8% to 12%. The target to domestic high yield has been reduced to 2% from 4%, and a range of zero to 6% was established.

Karl Polen, chief investment officer, said in a memo to the board, “We believe the shift to a higher policy target for private debt and a lower policy target for U.S. high yield will benefit the ASRS by providing higher expected returns and reduced volatility.”

The actual allocations to private debt and high yield were 9% and 3.3%, respectively, as of Feb. 6.

The pension fund does not issue RFPs.

The rest of the pension fund's target allocation is 26% domestic equity, 24% international equity, 11% core fixed income, 10% real estate, 8% private equity, 5% multiasset-class strategies and 2% commodities.

The rest of the actual allocation as of Feb. 6 was 24.2% domestic equity, 22.3% international equity, 11.1% core fixed income, 9% each, private equity and real estate, 3.9% opportunistic debt, 3.2% multi-asset class strategies, 1.3% commodities, 1% infrastructure, and the rest in farmland/timber and public opportunistic equity.