Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
June 25, 2018 01:00 AM

Strategic opportunities program moving state pension ahead

Virginia system carefully expanding practice of alignment with managers

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    David Stover
    Ronald Schmitz said Virginia officials, wary of risk, avoided moving too quickly.

    Nearly four years after starting a program of strategic alliances with external investment managers, the $78.1 billion Virginia Retirement System, Richmond, is ready to take the next step in its program.

    On June 8, the VRS board of trustees approved broadening the strategic opportunities portfolio by expanding its component parts of private investment partnerships and multiasset public strategies. The change involves adding a few new relationships, and Chief Investment Officer Ronald Schmitz hopes they will be funded by the end of June.

    The strategic alliance initiative was a top priority for Mr. Schmitz when he joined the Virginia Retirement System in 2011, after serving as CIO of the $76.6 billion Oregon Public Employees Retirement Fund, Salem, since 2002.

    Investment officials in Oregon and other large West Coast public pension funds in particular have been comfortable with these types of partnerships for a while, including the increased risk budget these approaches entail, he said. "VRS, more than any other place I have ever worked, is very risk-conscious, so this program has operated with a slow, deliberate approach," Mr. Schmitz said.

    Another reason for the change is to get better performance tracking than what was available when the strategic opportunities program was more of a catchall bucket.

    The strategic opportunities program was approved by the board in 2012, with the board setting the risk and return parameters, and a policy limit of 3% of the total pension fund, which was raised to 5% in June 2016. It was fully launched in 2014.

    At first, "it was intended to be a catchall for new initiatives we wanted to try. We went through various iterations," Mr. Schmitz said. Since then, the program has had time to evolve and the investment concepts have been tested, and it was time for the next step in the program, he added.

    As of March 31, the strategic opportunities portfolio accounted for 2.3% of assets, compared to 41.8% public equity, 17.1% fixed income, 16% credit strategies, 13% real assets, 9.7% private equity, and the rest in cash.

    The targets for the two new multiasset-class sleeves are 2% in private markets and 3% in multiasset public strategies. That leaves 40% in public equity, 16% in fixed income, 15% in credit strategies, 14% in real assets and 10% in private equity.

    Managers for the private investment partnership are Carlyle Group LP and KKR & Co. LP, legacy managers from the original program.

    Function like general partners

    With the original private markets program, the idea was to have the firms function like general partners, with approaches that cut across multiple asset classes, such as private equity or private credit, and preferably are global in nature. Using a single evergreen account where managers do not have to constantly return for new commitments, general partners have a mandate to go to multiple asset classes and geographies, and can give Virginia lower fees, the thinking went.

    For the private investment partnership benchmark, Mr. Schmitz recommended a weighted average mirroring the benchmark components of the private equity, real assets and credit strategies programs. It will be 40% private equity, 40% real assets and 20% credit.

    The multiasset public strategies class, with $2.25 billion, will include risk-based investments and dynamic strategies. The risk-based investments category totaling $1.2 billion has commitments with Bridgewater Associates LP's Pure Alpha II global hedge fund, Bridgewater's Optimal Portfolio, AQR Capital Management LLC for a multistrategy hedge fund and AQR Managed Futures. All are legacy funds; the pension fund expects to hire additional managers.

    Dynamic strategies managers BlackRock Inc., J.P. Morgan Asset Management and Morgan Stanley Investment Management will have an aggregate $1 billion. All three are new managers to the program.

    The multiasset public strategies benchmark will be a market value-weighted average of dynamic strategies and risk-based investments. The dynamic strategies benchmark is intended to track the benchmark components of the public equity, fixed-income and credit strategies programs. The risk-based investing benchmark will be a blend of a custom diversifying benchmarks and the Hedge Fund Research risk parity 12% volatility benchmark.

    Large public pension plans use strategic partnerships to achieve many objectives, including getting more from their managers, whether it is simply more tactical insights or information about building capabilities in-house. One appeal to Virginia was being more nimble in private markets, with the promise of that also leading to lower fees and costs, given the significant commitment to co-investments.

    "It's permanent capital, which is attractive for them, and it is nimble capital. It gets us into new opportunities faster," Mr. Schmitz said.

    In the risk-based investing portion, he plans to add more things to control for volatility. "We expect it to underperform in bull markets and overperform in bear markets," he said.

    His team is in the process of deploying the second piece, the dynamic asset allocation portfolio, "where the idea is to diversify the sources of active returns," Mr. Schmitz said.

    While he is "still very much a believer in private markets," he does expect "bigger dollars" initially for the multiasset public strategies. "We will eventually get there in private markets. We will grow," Mr. Schmitz said.

    "I expect this initiative to be around for a long time."

    Related Articles
    Virginia slates nearly $1.2 billion for 8 managers, terminates Oaktree
    Virginia pledges $75 million to energy private equity fund
    Virginia Retirement allocates $750 million to 4 managers
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    Infrastructure Debt Delivers Reliable Returns
    Sponsored Content: Infrastructure Debt Delivers Reliable Returns

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Middle market credit: We’re gonna need a bigger boat
    Alternative Credit: Differences and Opportunities in CLOs and Credit Risk Shari…
    Fixed Income is Attractive, but Beware of "Fake" Yield
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income