Nebraska Investment Council, Lincoln, restructured the overall equity portfolio in the defined benefit plan and cash balance plan it oversees, moving to 100% active management in global equities and 100% passive management in international equities, said Michael Walden-Newman, state investment officer, in an email.
The council, which oversees $26.2 billion in assets including the $11.8 billion defined benefit plan and $2.1 billion cash balance plan, approved changes to those plans' equity allocations at its meeting Monday. The council increased global equity to 19% from 15%, and decreased domestic equity to 27% from 29% and international equity to 11.5% from 13.5%. The overall target allocation to equity remains unchanged at 57.5%.
Global equity will change to a 100% active portfolio from its current 75% active/25% passive construction. In council meeting materials, a presentation from investment consultant Aon Hewitt Investment Consulting said staff and the consultant "believe that global mandates provide a more fertile hunting ground for 'alpha' than region-specific (e.g., 'international' or 'emerging market') mandates."
International equity, meanwhile, will change to a 100% passive portfolio from a 57.5% passive/42.5% active mix because "staff and AHIC do not believe that active management in non-U.S. is the most efficient use of our active risk," according to the presentation. Domestic equity will remain unchanged at 90% passive/10% active.
No new managers are being hired as a result of the changes. Despite the additional assets being allocated to active global equity, the council will not hire additional managers. The meeting materials said fewer active managers "reduces the potential that managers will take off-setting active positions, thus creating a 'closet index' with active management fees."
In global equities, the council is terminating BlackRock (BLK) from its $502 million passive global equity portfolio and reallocating to the four existing active managers: Arrowstreet Capital to $864 million from $602 million; Dodge & Cox to $610 million from $301 million; MFS Investment Management to $801 million from $401 million and Wellington Management to $267 million from $201 million. The remaining additional funding for the active managers is from the international and domestic equity reductions.
In international equities, the council is terminating active managers Baillie Gifford and Gryphon International Investment from their respective portfolios of $316 million and $452 million and increasing BlackRock's passive portfolio to $1.54 billion from $1.04 billion.
In domestic equities, BlackRock's passive portfolio is being decreased to $3.25 billion from $3.49 billion and Dimensional Fund's Advisors' active portfolio to $361 million from $388 million.