The New Jersey State Pension Fund, Trenton, will get a mini-makeover in fiscal year 2014 that includes a partial portfolio restructuring and new asset allocation.
The New Jersey Division of Investment, which internally manages about 70% of the $75.3 billion pension fund, will create a new global equity portfolio by combining $35.1 billion of domestic, international and emerging markets public markets equity investments.
The move to a global equity approach is being made for “mostly operational” reasons, Timothy M. Walsh, director of the investment division and chief investment officer of the pension fund, said in a May 17 interview in Pensions & Investments' Chicago office.
The problem with maintaining strict investment separation between U.S., developed non-U.S. and emerging markets equities is the sheer globalization of the world, Mr. Walsh said. He noted that the fund's in-house managers increasingly are running into definitional problems with stocks in which they invest.
For example, Seoul-based Samsung Group is technically an emerging markets play, but it sells $9 billion of its phones and electronics in developed nations, Mr. Walsh said. Similarly, Aon Corp. was a Chicago-based company for years until moving its headquarters to London last year. Mergers and acquisitions can blur the lines as well, he said.
A global approach for the internally managed domestic and developed market equity portfolios, which total $29.9 billion, will make it much easier for portfolio managers. “We can save money or make money by breaking down the walls,” Mr. Walsh said.
The investment division might be able to move to the new global equity structure by Dec. 31, Mr. Walsh said. The ultimate deadline for the change is June 30, 2014, the end of the fiscal year.
Staff also will begin implementing a new asset allocation on July 1, 2013, that adds non-U.S. securities to the inflation-linked portfolio; splits the current real estate portfolio into real estate equity and real estate debt and moves real estate debt into the income portfolio; and reduces allocations to hedge funds and commodities/real assets.
The new asset allocation was adopted at the May 16 meeting of the New Jersey State Investment Council, which approves investment policies of the investment division.