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.
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%.