Arizona Public Safety Personnel Retirement System, Phoenix, is considering adopting a new investment strategy for its $7 billion portfolio, said James Hacking, executive director. The strategy, which fund officials are calling an index-plus master manager program, would devote 90% of total assets to a relative protection portfolio composed of enhanced index managers. The portfolio would be designed to post returns at or above peer plans returns.
Four firms have presented proposals for the program: Fischer Francis Trees & Watts, Benchmark Plus Management, Morgan Stanley Investment Management and Western Asset Management. If the board approves the new strategy, it could hire the four firms or conduct a new search. It is too early to say how much any manager would oversee, Mr. Hacking said.
The remaining 10% of plan assets would be allocated to an absolute-return portfolio, comprising private equity, real estate and other alternatives, which now constitute about 5% of assets. Absolute-return investments would look to provide more aggressive returns. Over time, assets would flow from the protection portfolio into absolute return, eventually completely draining the former.
The board could adopt the move as early as its next meeting, April 16-18.
As of Sept. 30, 93% of assets were internally managed. The funds asset mix then was 62.9% U.S. stocks, 20% U.S. bonds, 10.4% international stocks, 2.8% real estate, 1.4% private equity and 2.5% cash.
At the suggestion that the move would completely remake the funds portfolio, Mr. Hacking said, Well, we certainly need it. The plan is 69% funded. Between 2000 and 2002, 30% of assets were lost due to the previous plan administrations bets on investments in high-tech, he said. Also, half of all returns over 9% go into a separate reserve used to fund cost-of-living increases for retirees, and do not count toward funded status. It is as if these funds dont exist, Mr. Hacking said.
Separately, the plan hired Albourne Partnersas an international private equity consultant. Capital Dynamics was previously selected for the mandate, but contract negotiations were unsuccessful, Mr. Hacking said.