Officials at the $13 billion Orange County Employees Retirement System, Santa Ana, Calif., are expected as early as Jan. 25 to discuss a new investment strategy that would eliminate the 14% absolute-return allocation, among other large changes.
The new strategy would create a new 22% allocation to real assets, a new 7.5% risk mitigation asset class and a new 2.5% opportunistic target. The pension fund's 10% real estate allocation and an 8% real-return allocation would also be eliminated in favor of new broader categories, according to spokesman Robert Kinsler and investment reports.
The real assets portfolio would include real estate and natural resources and possibly infrastructure. The risk mitigation portfolio would include commodity trading advisers trend-following strategies and systematic risk premiums. The opportunistic asset class would include part of OCERS' $788.1 million hedge fund portfolio as well as “unique opportunities that present themselves from time to time,” according to a Dec. 14 report to the investment committee by OCERS general investment consultant Meketa Investment Group.
OCERS would eliminate absolute return, consisting mostly of hedge funds and global tactical asset allocation strategies, to better control and monitor risks and lower fees, the Meketa report states.
The proposed asset allocation would also boost private equity by 1 percentage point to 7% and reduce credit to 13% from 14%. Core fixed income will have an 18% target under the latest proposal. Currently, the pension fund had a 10% allocation to domestic fixed income and 3% to emerging markets debt.
The new asset allocation would also cut global public equities to 30% from a total of 35%. OCERS' current global equity allocation consists of 15% domestic equity, 9% international equity, 6% emerging markets equity and 5% global equity. The real-return asset class can include class Treasury inflation-protected securities, timber, commodities, energy, agriculture and other strategies, according to OCERS' investment policy statement. It was not clear where those investments might end up in the new allocation.