San Jose Police & Fire revamps asset allocation

San Jose (Calif.) Police & Fire Retirement Plan approved a new asset allocation that changes its fixed-income portfolio to consist primarily of short-term government/credit and increases its exposure to emerging markets equities and private equity, Chief Investment Officer Prabhu Palani said in an email.

The $3.6 billion pension fund's new targets replace interim targets previously approved in May. Domestic equities is reduced to 13% from 16%, and the overall international equities target remains at 18%. However, within international, emerging markets equities increases to 10% of the total fund from 6% and international developed markets equities drops to 8% from 12%.

Within domestic fixed income (a total target which increases to 27% from 24%), the target to short-term government/credit fixed income jumps to 25% of the pension fund's total portfolio from 2%, and U.S. Treasury inflation-protected securities remains at 2%. Eliminated are the targets of 8% to U.S. Treasuries, 5% to core fixed income, 3% to long-term credit fixed income, and 2% each to bank loans and high-yield corporate credit.

Within international fixed income (the target to which increases to 6% from 4%), the pension fund created a new target of 3% of the total fund to global sovereign ex-U.S. fixed income and emerging markets debt drops to 3% from 4%.

Within real assets (the target to which drops to 7% from 16%), the 2% target to infrastructure is eliminated, core real estate drops to 5% from 8% and commodities to 2% from 6%.

Within private investments (the target to which increases to 22% from 16%), the pension fund created new targets of 3% each to private real assets and private real estate, increased private equity to 12% from 8% and dropped private credit to 4% from 8%.

Hedge funds, within its own category, increases to 7% from 6%. The prior 6% target was split evenly between 3% targets to macro and relative-value strategies, but those distinctions have been eliminated.

An implementation plan is pending approval at the pension fund's Thursday board meeting.

As of June 30, the actual allocation was 33.4% global equities, 26.9% global fixed income, 16.4% real assets, 8.3% private equity, 8% private debt, 6.2% absolute return and 0.8% cash.