Pennsylvania State Employees' Retirement System, Harrisburg, plans to cut its exposure to alternative investments nearly in half over the next 10 years as part of a new asset allocation.
The change is the result of a 2011 study by staff and R.V. Kuhns & Associates, the $25 billion pension fund's investment consultant, according to an e-mail from spokeswoman Pamela Hile.
The new asset allocation creates six categories, each with a five-year interim target allocation and 10-year long-term target, according to a report on the study, “2012-2013 Strategic Investment Plan”:
- global public equities, with a five-year target of 32% and 10-year target of 38%;
- alternative investments — including private equity, special situation and venture capital funds and non-core real estate funds — with a five-year target of 24% and 10-year target of 16%;
- fixed income, with a five-year target of 17% and 10-year target of 19%;
- real assets — core real estate funds, real estate separate accounts and real estate investment trusts — that “have near-term liquidity,” according to the report, and inflation protection, with five-year and 10-year targets each of 12%;
- diversifying assets, which replaces the retirement system's absolute-return strategies asset class, with five-year and 10-year targets each of 12%; and
- liquidity reserves, with five-year and 10-year targets each of 3%.
The previous categories and their actual asset allocations as of Dec. 31 were 26.2% alternative investments; 18.5% fixed income; 13.5% domestic equities; 11.8% international equities; 10.6% real estate; 8.2% absolute return; 4.2% inflation protection; 3.8% global equities; 3.2% cash.
Absolute-return strategies now fall within the diversifying assets class, while inflation protection falls within real assets. Non-core real estate now falls within alternative investments, while other real estate investments fall within real assets.
Applying those categories, the actual allocations as of Dec. 31 would have been 30% alternative investments; 29% global public equities; 19% fixed income; 12% real assets; 8% diversifying assets and 2% liquidity reserve.