Texas Permanent School Fund, Austin, will increase fixed-income and alternatives investments and reduce its equity exposure as part of a new long-term strategic asset allocation for the $24.4 billion educational endowment fund, confirmed Suzanne Marchman, a spokeswoman for the Texas State Board of Education, which oversees the fund.
The new allocation reduces equities to 46% of total assets from 50%; increases fixed income to 17% from 15%; and raises alternatives to 37% from 35%, according to materials from the July 18-20 State Board of Education meeting.
U.S. large-cap equity will be cut to 18% of total assets, from 21%; international large-cap equity will increase to 18% from 14%; a 4% allocation to international small-cap equity was eliminated; emerging markets equity was lowered to 3% from 4%; core bonds dropped to 12% from 15%; a 5% allocation to emerging markets debt was added; and real estate was raised to 8% from 6%;
Allocations to the following asset classes remained unchanged: U.S. small- to midcap equity, 7%; private equity, 6%; real return, 6%; hedge funds, 10%; and risk parity, 7%.
According to the board report, the new asset allocation is expected to return 7.4% per year with a standard deviation of 12.16% and a Sharpe ratio of 0.51.
In other news from the July board meeting, commitments of $75 million each were made to Mesa West Real Estate Income Fund II and Oaktree Capital Management, subject to satisfactory due diligence and contract negotiations, said Ms. Marchman in an e-mail.
Separately, the State Board of Education set the annual distribution from the Permanent Fund at 3.3% for fiscal years 2014 and 2015 or about $830 million each year in order to meet the fund's constitutional obligation of providing instructional materials and to pay general education expenses for Texas public school students.