Hawaii Employees’ Retirement System, Honolulu, revised its target asset allocation with the addition of new asset classes and an increase to real estate, among other changes, said Vijoy Chattergy, chief investment officer of the $14.4 billion pension fund.
The new targets are:
- 63% broad growth, composed of approximately 22.5% of total fund assets each to public equity and stabilized growth strategies, and 18% of total assets to private growth strategies;
- Up to 20% crisis risk offset, a new asset class aimed at offsetting drawdowns in the broad growth asset class. Potential underlying strategies could include long Treasuries, trend-following strategies and liquid alternatives, among others, Mr. Chattergy said.
- 10% real return;
- 7% principal protection; and
- opportunistic investments, a new asset class with a 0% long-term allocation but designed to take advantage of dislocations in the market.
Previously, the pension fund had a 7% target allocation to real estate. As part of the above changes, real estate will be divided into its functional risk components with core real estate in the stabilized growth category, and opportunistic and value-added real estate in the private growth category. The new estimated targets for core and non-core real estate are 5% and 4.5% of the total portfolio, respectively.
Besides moving core real estate, the pension fund is looking to build out its stabilized growth program with new strategies such as low volatility. Searches could be conducted in the next few months, Mr. Chattergy said.
Real return, which currently comprises public and private-inflation linked securities and had a 5% target under the old framework, could be expanded to include unleveraged real estate.
Additionally, the pension fund is re-evaluating its public equity program. New searches for global equity managers could be launched soon, Mr. Chattergy said. Existing equity managers will be invited to apply. A search is currently underway for passive global equity managers. Further information on the searches could not be learned by press time.
The new targets come as the result of an asset-liability study by investment consultant Pension Consulting Alliance.
The pension fund’s current targets are 76% broad growth, consisting of approximately 60% public equity, 12% covered calls and credit, and 4% private equity; 12% principal protection, primarily government bonds; 7% real estate, consisting of core, value-added and opportunistic investments; and 5% real return, consisting of public and private inflation-linked securities.
