Maryland State Retirement tweaks asset allocation to more private equity, TIPS

Maryland State Retirement & Pension System, Baltimore, will redeploy some international developed market equity and absolute return assets to a combination of private equity and TIPS, as part of an asset allocation policy recommended by investment consultant Meketa Investment Group and approved by the board of trustees.

“The increase in private equity provides some additional return potential in strongly positive markets, and the TIPS offer better protection during periods of higher inflation and large equity drawdowns,” said a memo the board's investment committee. “Overall, the expected return and risk are similar under all of the proposed options, but with slightly different behaviors in extreme markets.”

The asset allocation changes, approved by trustees May 19, call for boosting private equity to 11% from the current 10%. Achieving 11% in the next three years would require an additional $250 million per year in commitments, according to the recommendation, which also calls for boosting the Treasury inflation-protected securities allocation to 5% from 4%.

International developed markets equity would drop to 12% from 13% and absolute return to 8% from 9%.

Unchanged asset allocations are 16% U.S. equity, 10% each real estate and government bonds, 9% credit, 8% emerging market equity, 6% mortgage-backed securities/corporate bonds, 3% commodities and 2% natural resources/infrastructure.