San Diego City Employees' Retirement System adopted a new asset allocation, said Christina Di Leva, communications manager for the $6 billion pension fund in an e-mailed response to questions.
The new allocation swaps the pension fund's 22% U.S. fixed-income allocation for a U.S. intermediate fixed-income allocation, doubles its private equity allocation to 10%, increases its emerging markets debt allocation by two percentage points to 5% and adds a 1% allocation to emerging market equities.
SDCERS might search for an emerging markets equity manager, Elizabeth Crisafi, chief investment officer, said in a separate e-mail.
Funding is coming from reducing its U.S. equities to 21% from 26% and dropping non-U.S. equities three percentage points to 14%. The fund's real estate allocation remains at 11%, its infrastructure is still 3%, global equities remains at 5% and its opportunity fund remains at 8%.
The fund is shortening the fixed-income duration to focus on an intermediate orientation, Ms. Di Leva explained.
“Research indicates that intermediate bonds have a lower volatility and lower correlation to equities than longer duration bonds. Additionally, in the current environment, investors are not compensated sufficiently for the additional volatility of longer duration bonds,” she wrote.
Fund officials do not expect to hire additional fixed-income managers. SDCERS is changing the benchmark for its $291 million U.S. passive fixed-income portfolio, which is managed by BlackRock, to the Barclays Capital Intermediate Aggregate Bond index from the BarCap Aggregate. The board is expected to discuss implementation of its new asset allocation next month.
Separately, SDCERS' net return was 10.3% for the year and 9.3% for the 10 years ended March 31 Ms. Di Leva said.