The office of Utah’s legislative auditor general and its consultant are asking officials at Utah Retirement Systems, Salt Lake City, to consider reducing the pension fund’s alternatives allocation, following an audit of the pension fund’s management and investment practices.
The audit, released earlier this week, reveals the $26.2 billion pension fund’s alternatives allocation — composed of private equity, hedge funds and real assets — rose to 40% in 2013 from 16% in 2005.
Within that period, private equity investments rose to 11% of total assets from 3.3% and hedge funds, introduced in 2006, grew to 16.7% in 2013. Real assets, however, remained relatively static during that period between 12.2% and 18.7%.
At 40%, URS’ alternatives allocation is now “significantly larger than the alternative investment allocation of most state pension systems,” said John M. Schaff, auditor general and author of the report.
Chris Tobe, an independent consultant hired to assist with the audit, further said in the report, that “had URS maintained its 2004 allocation with fewer alternative assets and no hedge funds, URS would have theoretically gained $1.35 billion in additional assets in 2013,” according to the report.
Mr. Tobe goes on to recommend URS consider gradually reducing its alterative investments over time, arguing that the risks of a 40% allocation will outweigh the diversification benefits over time.
“At this point, the status of the recommendations is that we will review them and discuss with our board. We have not yet met with the board to discuss. We don’t have it as an agenda item yet, but our next board meeting is May 14,” URS spokesman Brian Holland said in an e-mail.
Questions on URS management and investment practices from a state legislator prompted the audit. In addition to asset allocation, the audit assessed transparency, fiduciary responsibilities and investment manager and retention at URS.
The report is available on the state’s website.
