Florida State Board of Administration, Tallahassee, is considering allocating $2 billion to $5 billion to hedge funds for a portable alpha strategy within the $113 billion Florida Retirement System's traditional public equity and fixed-income portfolios to access better opportunistic investment manager skill.
As part of that potential restructuring, the Florida Retirement System's defined benefit fund is considering increasing its passive investments.
Kevin SigRist, FSBA deputy executive director, asked consultants Ennis Knupp and Wilshire Associates to evaluate adopting a higher passive allocation in domestic equities, international equities and investment-grade fixed income, “including defunding both traditional active managers and enhanced index managers,” as well as to evaluate the portable alpha strategy, according to a memorandum he wrote to the consulting firms.
“Derivatives overlays would be utilized to provide market exposure” for the portable alpha strategy, Mr. SigRist wrote in the memo, called “Business Model.”
Also, as part of the restructuring, the board, which oversees a total of $137.9 billion in assets, is considering eliminating “high yield as a stand-alone asset class and allow opportunistic high-yield exposure” by core-plus bond managers or managers in the strategic investments allocations, designed to make opportunistic investments, the memo said.
The board expects a preliminary report on the evaluations in June. Dennis D. MacKee, communications director, said further discussion and analysis would be necessary after the report before any decision would be made. FSBA has no time frame for taking action.
The Florida Retirement System's defined benefit plan has 80% of its assets in domestic equities invested passively, as well 20% of its international equity and 20% of its fixed income. It has 20% of its domestic equity, 99% of its international equity and 60% of its fixed income assets externally managed.
Separately, the board renewed its commitment to search for a manager to run a terror-free international equity fund as an investment choice for its $4.8 billion 401(a) plan.
The board had failed to meet a March 1 deadline imposed by the Florida Legislature to begin offering such an option to participants.
Wilshire and board staff are directly contacting investment advisory firms they've identified as candidates to offer such a fund, either passively or actively managed, Mr. MacKee said.
Wilshire and staff were unable by the deadline to find a fund that doesn't have investments in companies with links to Iran and Sudan, as required by a state law enacted last year, Mr. MacKee said.
“To date, no product exists that meets our fiduciary requirements that would provide suitable fees and returns for (Florida Retirement System) Investment Plan members,” Ashbel C. Williams, FSBA executive director and chief investment officer, wrote in a letter March 10 to state Sen. Ted Deutch, co-sponsor of the terror-free investment legislation. “We will continue our search in good faith and promptly let you know if we are successful in our efforts.”
Mr. Deutch in an earlier March 9 letter to Mr. Williams wrote, “While I appreciate the difficult nature of this task, I have great concern that this deadline has passed, and yet no terror-free option has been offered.”
“We will continue the search until we find one,” Mr. MacKee said. An RFP is “unlikely at this point.” FSBA doesn't need an RFP because the search is using Wilshire's manager database as well as Wilshire and FSBA staff reaching out to socially responsible investment managers, Mr. MacKee said.
“Our office has demanded that they expedite the process to find a terror-free investment option,” said Josh Sztorc, spokesman for Mr. Deutch. Mr. Deutch is working on a response to Mr. Williams' letter, which could ready next week, Mr. Sztorc said.
