Illinois Municipal Retirement Fund, Oak Brook, will add a 2% public real assets suballocation to its U.S. equity allocation under a new target asset allocation approved Friday by the $34.7 billion pension fund's board.
The new overall target allocation, effective Jan. 1, will keep U.S. equity at 38% but will cut traditional domestic stocks to 36% to fund the public real assets suballocation, which would generally be publicly traded real estate such as real estate investment trusts.
Also, international equities will be cut to 16% from 17%, fixed income will be increased to 29% from 27%, and alternatives will be trimmed to 8% from 9%.
Real estate and cash will remain at 8% and 1%, respectively.
The changes were the result of an asset-liability study conducted by Wilshire Associates, which was hired by the board in 2014 to perform the study. Callan Associates is IMRF's investment consultant.
Public real assets were added to provide an inflation hedge at a lower cost and greater liquidity than private real estate, according to a recommendation from Wilshire and IMRF's investment staff to the board.
Also, within fixed income, the suballocation to high-yield bonds was increased to 2.5%, from 1%, and in alternatives, the suballocation to timber/agriculture/infrastructure was cut to 2.2% from 3%. Dhvani Shah, IMRF's chief investment officer, said the alternatives cut is more the result of implementation than performance. The pension fund's actual allocation to alternatives is 3.6%. The pension fund returned 4.33% on its investments in the third quarter, compared to its custom benchmark’s 3.31%. At Thursday's investment committee meeting, Janet Becker-Wold, senior vice president at Callan Associates, said the outperformance was because of a 9% gain in small-cap equities as measured by the Russell 2000. IMRF has a slight small-cap bias in its U.S. equity portfolio.
For the 12 months ended Sept. 30, the pension fund returned 9.68% vs. the 10.38% benchmark return.
For the latest quarter, the U.S. equity allocation returned 6.18% vs. the 4.4% of the Russell 3000 benchmark; international equities, 6.48% vs. the Morgan Stanley Capital International All-Country World ex-U.S. return of 6.91; and fixed income returned 1.32% compared to the 0.46% of the Barclays Capital U.S. Aggregate Bond index .
Alternative investments returned 1.86% for the quarter and real estate, 2.3%.