The rising stock market in February and March provided an opportunity for the Phoenix City Employees' Retirement System to use the excess return from being overweight U.S. equities to pay benefits, said Greg Fitchet, investment officer at the $2.1 billion plan.
The pension fund, which has a 23% domestic equity target, had been overweight by about four percentage points; it's currently about 1.1% overweight.
“We were able to shoot the lights out and take advantage of the returns as a kind of mini-rebalance to fund our pension payrolls,” Mr. Fitchet said. “But being overweight at the right time is not the issue. We operate in an artificial world” because of central bank actions, “and we need to sustain the returns long term.” He added that the pension fund's 2010 quarterly rebalancing policy remains in effect.
At the Ohio Police & Fire Pension Fund, Columbus, the equity gain “was welcomed, but did not change our pacing in rebalancing our portfolio,” said John Gallagher, executive director. The $14.1 billion pension fund has used a risk-parity approach in its investments for several years, he said.
“U.S. equities may need a breather-correction, as it's been a great string of years,” said Mr. Gallagher, but “we continue to have significant equity exposure across the globe.” OP&F had 26.7% in domestic equity and 25.4% in international equity as of Dec. 31, both above the targets of 18.5% each.
Mr. Gallagher said any effect of the declines, specifically in technology stocks, would be less at OP&F than at other pension funds “because of our risk-diversification approach and the alternative strategies being used in our portfolio to dampen volatility. We wouldn't pretend to be market prognosticators, but as for rebalancing ... we are gradually making allocation changes and hope to take advantage of whatever opportunities the markets present to sell into strength or buy into weakness.”
In foreign markets, declines specifically in Asia and Europe would have “ripple effects” in the U.S., Mr. Gallagher said, “but we expect corrections to occur and for markets to resume a positive trend in the continued recovery of equity markets worldwide.”