University of Maine System's investment committee will consider creating new allocations for bank loans and international small-cap equities for its $272 million managed investment pool of six endowment funds, and new allocations to bank loans and Treasury inflation-protected securities for its $31 million pension fund at its March 9 meeting, said Tracy E. Elliott, director of finance and controller, in an email.
The system's investment consultant, NEPC, is recommending the creation of a new 5% target to international small-cap equities within the managed investment pool by reducing the rest of international equity target to 11% from 16%, and creating a new 5% target to bank loans by eliminating the 5% global multisector fixed-income target.
NEPC is also recommending increasing the investment pool's target to TIPS to 8% from 3% by reducing the core fixed-income target to 5% from 10%.
According to a presentation from NEPC to the committee, the changes are being recommended “to marginally improve the portfolio's (5- to 7-year) return expectation and maintain the same expected asset volatility.”
Targets that would remain unchanged are 20% global asset allocation; 16% domestic large-cap equities; 6% each credit hedge funds, long/short hedge funds and domestic small/midcap equities; 4% each emerging markets equities and emerging markets small-cap equities; 3% private real assets–infrastructure/land; and the remainder in private equity.
For the pension fund, NEPC is recommending the creation of a new 7% target to TIPS by reducing the core fixed-income allocation to 20% from 27%, and creating a new 5% target to bank loans by eliminating its 5% target to global multisector fixed income.
Targets that would remain unchanged are 25% global asset allocation; 8% each core real estate and domestic large-cap equities; 7% international equities; 5% each credit hedge funds and long/short hedge funds; 4% domestic small/midcap equities; 3% emerging markets small-cap equities and 3% cash.
The changes to pension fund targets are being recommended to “increase the return profile and slightly reduce the expected asset volatility (standard deviation) with an improved Sharpe ratio,” according to the presentation.
Whether interested managers can contact NEPC if the new allocations are approved could not be immediately learned.
As of Dec. 31, the investment pool's actual allocation was 20.4% global asset allocation, 18.3% domestic large-cap equities, 18.1% total fixed income, 15.6% international equity, 12.3% total hedge funds, 6.6% emerging markets equities, 6% domestic small/midcap equities, 1.9% real assets, 0.5% private equity and the rest in cash.
As of Dec. 31, the pension fund's actual allocation was 31.7% total fixed income, 25.5% global asset allocation, 10.2% alternative investments, 8% real assets, 7.8% domestic large-cap equities, 6.5% international equities, 4.7% domestic small-cap equities, 3.1% emerging markets equities and the rest in cash.
Ms. Elliott referred additional questions to Kelly A. Regan, senior consultant at NEPC, who could not be immediately reached.