The Washington State Investment Board approved a new asset allocation that increases illiquid asset exposures by 5 percentage points, giving the $91 billion pension fund a 48% allocation to private markets, one of the highest by a public pension plan in the U.S.
The allocation to private markets would have been even higher but Chief Investment Officer Gary Bruebaker told the board that the private equity portfolio's target allocation of 23% could not be increased to 25% as hoped because not enough high-quality private equity investments could be found in coming years. He also said large private equity firms were offering smaller limited partner stakes to the pension plan in new funds because of the increased demand from other institutional investors for a share of the private equity pie. The current actual allocation to private equity is 20.4%
The new allocations approved by the Olympia-based board on Thursday increases the target real estate allocation to 18% from 15% (the actual allocation is at 17%) and increases the target allocation to tangible assets to a 7% target from 5%. Tangible assets, which includes infrastructure, forestland, energy and agriculture investments, currently makes up 3.8% of the portfolio.
Fixed income under the new asset allocation remains at 20% (actual allocation is 19.3%), while equities are reduced to 32% from 37% as part of a risk mitigation plan. The current allocation to equities is at 39.4%.
This is the first time the Washington State Investment Board has changed its asset allocation in four years. The new targets take effect immediately, though, investment board officials say it could take several years to mitigate the portfolio to the new positions.
Investment staff had originally proposed cutting public equities to 30%, as part of the plan to increase the target allocation to private equity to 25%.
One board member at Thursday's meeting, Tracy Guerin, asked investment officials why additional efforts were not being made to increase allocations in real estate or tangible assets to keep up with the original plan to cut equities to 30%.
Mr. Bruebaker said the investment staff had expanded target allocations to real estate and tangible assets as much as possible, but growth trajectories for those asset classes would make it difficult for the investment staff to run larger programs.
The board oversees more than $116 billion in total assets.