Minnesota State Board of Investment, St. Paul, next year will consider slight changes to its public and private markets investments, including allowing for more international equity investments and broadening overall opportunities in equities and fixed income.
The changes would not affect the overall strategic asset allocation for the $60.1 billion in combined retirement fund assets it manages — 60% public equities and 20% each fixed income and alternatives, said Mansco Perry III, the board's executive director and chief investment officer, on Tuesday in a report to the board’s investment advisory committee.
“As I’ve said before, nothing’s broken here,” Mr. Perry said. “We’re just looking at changes on the margins” to enhance its investment flexibility and seek additional sources of alpha.
Mr. Perry said the combined retirement fund’s bias to U.S. stocks could be reduced, possibly to two-thirds of the overall public equity portfolio from the current 75%.
Also, the board’s investment staff is looking at widening allowable U.S. equity benchmarks beyond the existing Russell 1000 and 2000 indexes, possibly to include more midcap, smidcap, small-cap and microcap equities, according to a presentation made to the committee. Similar consideration will be made to adding more allowable international equity benchmarks apart from the existing MSCI ACWI ex-U.S. and MSCI Emerging Markets indexes.
In alternatives, potential changes include reclassifying the fund’s subasset classes to include distressed debt, credit, natural resources and real estate. Some of those investments are currently in the fund’s 14% yield-oriented suballocation to alternatives, which would be phased out. Private equity, at 46% of the alternatives allocation, would remain the largest part of the allocation, Mr. Perry said. He also said other possible moves in alternatives would be into liquid alternatives and to broaden investments in emerging markets.
Some of the suggested changes could be included in an asset allocation review that could be presented to the committee in the second quarter of 2016, Mr. Perry said.
The board oversees a total of $77 billion in assets.