University of Missouri System, Columbia, overhauled the asset allocation of its $3.3 billion defined benefit plan and $1.5 billion endowment pool as the result of an asset allocation study, said Thomas F. Richards, treasurer and chief investment officer, in an email.
The system's board of curators approved the changes at its meeting Sept. 29. The system is eliminating targets of 6% each to hedge funds in the pension plan and endowment pool. The system also eliminated targets to opportunistic debt of 12% in the pension plan and 7% in the endowment pool; targets to emerging markets debt of 6% in the pension plan and 5% in the endowment pool, and targets of 4% each to global fixed income in the pension plan and endowment pool.
According to board meeting materials, staff and investment consultant Verus Advisory recommended the eliminations of opportunistic debt and emerging markets debt because "each contains some degree of inherent equity risk, and we are attempting to reduce equity risk throughout the portfolio" and because the staff believes those also contain inherent credit risk, and that as "we are in the late stages of economic expansion," the system should reduce exposure to those asset classes. The materials did not provide specific reasons for the elimination of the hedge fund and global fixed-income targets.
The system is adding targets to sovereign bonds of 15% in the DB plan and 14% in the endowment pool. In board meeting materials, the staff recommended the targets to be used for investing primarily in U.S. Treasury futures "with underlying cash used to help fund the portable alpha program." Also, the system increased the targets to inflation-linked fixed income to 17% from 4% in the pension plan and to 15% from 3% in the endowment pool "as part of an effort to mitigate the risk (when) inflation begins to rise and to further mitigate the risk of falling growth," board materials said.
The system added new targets of 3% each to private debt in the DB plan and endowment pool, and increased targets to commodities to 5% from 3% in the DB plan and to 5% from 2% in the endowment pool. The system also reduced the target to real estate/infrastructure in the endowment pool to 8% from 10%.
Under global equities, the system is reducing its target to 32% from 37% in the DB plan and to 35% from 43% in the endowment pool as part of the "effort to build a more balanced portfolio."
Targets that remain unchanged in the pension plan are 10% each, private equity and risk-balanced strategies and 8% real estate/infrastructure. Targets that remain unchanged in the endowment pool are 10% each, private equity and risk-balanced strategies.
The system is also expanding its portable alpha program to a maximum limit of 25% of capital from 10% of capital "as a key part of our efforts to implement a more risk-balanced portfolio," according to meeting materials.
Actual asset allocation information was not immediately available.
Mr. Richards could not immediately provide further information on implementation of the new targets.