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Pension Funds

Austin City implements new allocation that shifts fixed income, boosts infrastructure

City of Austin (Texas) Employees' Retirement System is conducting money manager searches in two asset classes after trustees gave final approval to a new strategic asset allocation for the $2.5 billion fund.

The new asset allocation, approved at a Dec. 11 meeting and effective immediately, lowered the fund's fixed-income target to 20%, or about $500 million of plan assets, from 22.5%.

In addition, the parameters for the fixed-income portfolio, which to date has been invested only in U.S. Treasuries, has been broadened to include U.S. mortgages (4% of plan assets) and U.S. credit (8%) as well as maintaining an 8% allocation to U.S. Treasury bills, said David T. Veal, chief investment officer.

The fund is nearing the end of a search for active managers of U.S. mortgages and credit managers.

A search for managers of U.S. T-bills allocation also is in process; Mr. Veal said a decision about whether to hire active or passive managers is pending.

The system is not required by law to use an RFP process when searching for managers, Mr. Veal said, noting investment consultant RVK provides the fund with a list of potential managers for the fixed-income hires.

Currently, Northern Trust Asset Management manages a $161 million passive U.S. T-bills strategy and Agincourt Capital Management runs $377 million in an active strategy. Both managers are within the group of firms being considered for the hires, Mr. Veal said. The fund has not set a date for a selection or the number of fixed-income managers to be hired.

The investment staff and RVK are beginning to look for managers for the fund's infrastructure portfolio the weighting of which was raised by 1 percentage point to a 5% allocation or about $125 million of plan assets.

Mr. Veal said the portfolio had been invested in master limited partnerships through a $69 million investment made with Harvest Fund Advisors, but the fund terminated the investment in April as part of a tactical plan to move to active or passive management of infrastructure investments.

RVK also will provide potential candidates for the system's infrastructure search. A timeline for manager selection has not been set.

Also as part of the new allocation, U.S. equity increased to 32% from 29%; developed market equity decreased to 15% from 19%; real estate was nearly doubled to 10% from 5.5%; emerging market equities was reduced by one percentage point to 8%; strategic partnerships and risk-parity strategies remained at 5% each: and a 1% allocation to commodities was eliminated.

In other news from the fund's December board meeting, the Austin system's newly approved investment implementation policy requires that the investment team move to a "premier list" model for money manager hiring. Mr. Veal said internal staff will seek to build a pool of potential managers for each asset class to enable the fund to make manager changes quickly if necessary.

Separately, the system will begin recruiting to fill two new internal investment positions: strategy/risk management officer and investment analyst.

Mr. Veal said he expects the job advertisements to be posted on the system website by Dec. 21.