Ohio Police & Fire Pension Fund, Columbus, approved plans to adopt a risk-parity strategy for the $10 billion fund, cutting equity allocations and using leverage to boost fixed-income holdings to deliver the same expected returns with less risk, according to spokesman David Graham.
Under the plan adopted by the board on Feb. 24, the fund's equity allocation will drop to 43.4% from 58%, with U.S. equity and non-U.S. equity each falling to 21.7% from 29%.
Fixed-income holdings will more than double to 51.6% of the portfolio's value from 20%. By segment, long-duration fixed income will surge to 23.7% from 6%; high-yield bonds will jump to 15% from 8% and global inflation-protected bonds will rise to 12.9% from 6%.
Lastly, alternatives will edge up to 25% from 22%, with a new 3% allocation to commodities joining existing allocations of 7% to private markets, 12% to real estate and 3% to timber.
Altogether, the new portfolio will have market exposure of 120%, but with the reduction in equities, the highest risk asset class, the expected return should hold steady even as expected risk is reduced by 91 basis points, according to Mr. Graham.
The program was designed in conjunction with the plan's consultant, Wilshire Associates.