Austin (Texas) City Employees' Retirement System's trustees approved tactical changes to asset class weightings, adding more exposure to U.S. Treasuries at the expense of U.S. corporate credit, during a March 31 board meeting for the $2.5 billion pension fund.
The allocation to U.S. Treasuries was increased to 12% of plan assets from 8%. The increase came from the pension fund's corporate credit portfolio, which was reduced to 4% from 8%, CIO David T. Veal said in an interview.
Mr. Veal said the asset allocation changes were made in part to capture Treasury returns that "have been so good, as well as to provide a portfolio hedge."
The Bloomberg Barclays U.S. Long Treasury Total Return index returned 20.9% in the quarter ended March 31.
Another reason for the increased allocation to U.S. Treasuries was diversification, Mr. Veal said, noting that "80% of our AUM is in growth assets, including equities and real estate, and on the advice of our consultant, RVK, we decided that the other 20% of the portfolio should be as diverse and growthy as equity."
Funding for the asset allocation changes came from the redemption of a $120 million active U.S. investment-grade credit strategy managed by Loomis Sayles & Co. The firm remains on the pension fund's premier manager list and may be allocated assets again in the future.
Existing manager NISA Investment Advisors will manage $65 million of the redeemed assets in U.S. Treasury futures and $5 million in a gold futures strategy, a new asset class for the pension fund, Mr. Veal said.
The small allocation to gold futures along with existing investments in Treasury inflation-protected securities are designed to protect the portfolio from near-term deflationary conditions that might arise over the next few quarters, Mr. Veal said.
With the addition of the two new futures assignments, NISA manages a total of about $250 million for the pension fund.
The balance of the $120 million redemption from Loomis Sayles will be used to rebalance other asset class portfolios, Mr. Veal said.