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.