Michigan State Retirement Systems, East Lansing, will increase its hedge fund allocation to 6% from 2% and its real return/opportunistic allocation to 4% from 1%.
The Michigan Department of Treasury, Bureau of Investments, which manages the $45 billion systems, will begin to increase investments in both strategies in fiscal 2011, which begins Oct. 1, confirmed Terry Stanton, a Treasury spokesman, in an e-mail response to a call seeking more information.
Based on the results of an asset allocation review, the systems’ investment advisory committee on Thursday approved funding the allocation increases by a gradual reduction of the systems’ private equity allocation to 14% from about 20%. “The primary thrust is to reduce private equity … this will occur gradually, over time. Private equity has done well for the funds, but with increasing liquidity needs over the next several years, the change will reduce illiquid asset holdings,” Mr. Stanton said in his e-mail.
The systems’ other asset allocations were not changed.
Separately, the systems sold $1 billion in active and passive U.S. equities and active international stocks in the first quarter to meet pension benefit payments, according to minutes from the June 2 IAC meeting, released Sept. 2.
Jon M. Braeutigam, the bureau’s director and chief investment officer, explained to committee members that the system “takes advantage of the swings in the markets to determine where the cash will be taken (from) to pay benefits,” according to the minutes. The minutes noted that “raising cash to pay benefits” happens on a quarterly or six-month basis. “Raising cash from equities in the first quarter was the right decision,” Mr. Braeutigam said, according to the minutes.
Mr. Stanton said total benefits paid by the systems in excess of employer contributions will total about $2.4 billion by the end of the systems’ current fiscal year, Sept. 30. He said the payout is about the same as in the prior year.
According to the June 2 IAC minutes, the system also invested an additional $203 million in the customized hedge fund-of-funds portfolio managed by Aetos Capital. Information about the size of Aetos’ previous mandate was not available; Mr. Braeutigam did not return a call seeking more information.