Phoenix City Employees' Retirement System is adopting a new asset allocation that adds targets to absolute return and private equity, confirmed Greg Fitchet, investment manager for the $2 billion pension fund.
The board of trustees approved the new allocation, recommended by staff and investment consultant R.V. Kuhns & Associates, at its June 20 meeting.
The absolute-return target is 15% and replaces the retirement system's 10% target to long/short equities, while the private equity target is 3% and consists primarily of separate account funds of funds.
The asset allocation study was done following a special city referendum on March 12 that amended the investment standards, legal status and funding provisions for the pension fund. Previously, the fund could not invest in asset classes such as private equity, high-yield debt and some real asset classes.
The changes are effective July 1. The pension fund's first steps primarily will be to move money among current managers, Mr. Fitchet said in a telephone interview.
One of the first moves that will be recommended to the board at its July 17 meeting is moving about $158 million into the PIMCO All Asset All Authority Fund, which is subadvised by Research Affiliates.
Mr. Fitchet said Research Affiliates currently runs the money in a customized global tactical asset allocation separate account that mirrors the All Authority fund but without its high-yield component.
Other changes include increasing diversified inflation strategies to 8% from 5%, reducing broad domestic equities to 18% from 23% and reducing broad international equities to 16% from 22%.
Targets that remain unchanged are 20% intermediate-duration bonds, 8% non-core real estate, 7% core real estate and 5% emerging markets debt.