North Carolina Retirement Systems, Raleigh, should consider increasing its private equity and passive equity allocation and review its hedge fund targets, according to a fiduciary study of the $68 billion system by consultant Ennis Knupp.
According to the study, the system's target allocation of 3.5% of assets for private equity is low compared to similar-sized public pension plans. “It may be worthwhile for NCRS to consider whether a higher allocation to private equity is appropriate,” the study said.
Also the system's 1% hedge fund target is slightly lower than its peers. “Given the complexities and risks of the hedge fund asset class, it may be worthwhile to evaluate its intended role within the total fund,” to see whether it's even worth continuing to have this investment class, the study said.
The study also suggested an increased allocation to passive equity investments. As it stands, about 12% of total assets are invested passively, while other public pension funds with more than $20 billion in assets are about 22% invested passively, the study said.
“The structure of the NCRS index fund portfolio is complex and redundant,” the study added. “A more streamlined approach to indexing may benefit NCRS and serve to eliminate misfit risk between the equity portfolio and the asset-class benchmark.”
The study also recommended that the system's next asset liability study be conducted by an independent investment consultant, working with an actuary. The NCRS' previous asset liability studies were conducted by an investment manager to the fund, “which could present an appearance of a conflict of interest,” the study said.
The study, which recommended more than 100 changes in fund policies and practices, also urged adoption of an insider trading policy and to require disclosure of political contributions and gifts by those seeking to do business with the fund.
All of the study's recommendations would be “given consideration,” Melissa Waller, a fund spokeswoman, wrote in an e-mailed statement.
The study was requested by Janet Cowell, North Carolina state treasurer and sole fiduciary of the retirement systems, said Heather Franco, a spokeswoman for the fund.