South Carolina Retirement System Investment Commission approved tweaks to the asset allocation of the $27.6 billion South Carolina Retirement Systems at a board meeting Thursday, but might make bigger changes for the next fiscal year ending June 30, 2017.
Effective in January, the target allocation to public equities will rise to 34% from 31% with funding coming from a three-percentage-point decrease in the cash and short-term fixed-income target to 2% of plan assets, a meeting webcast showed.
Static target weightings will be abolished for private equity — now 9.6% of total assets — and private debt — now 7%.
The commission oversees investment of pension fund assets for the South Carolina Public Employee Benefit Authority, a separate administrative agency. Both entities are located in Columbia.
“We need to push harder to get excess returns,” Geoffrey Berg, acting chief investment officer, stressed to commissioners as he presented the preliminary results of an asset allocation review designed to improve fund returns, according to the webcast.
The investment staff has been researching new approaches, including the use of a portable alpha overlay and the addition of equity options strategies, which were factored into three different asset allocations.
Commissioners were not asked to vote on a possible allocation change, but generally favored Mr. Berg's option that expects a 7.3% long-term return with expected risk of 12.4% and a Sharpe ratio of 0.4. The fund's current lineup has an expected return of 7%, expected risk of 11.6% and a Sharpe ratio of 0.4.
This portfolio mix features increases in the target weightings to public equity to 41%; public credit and emerging markets debt to 6% from 5%; and real estate to 8% from 5%. A new 3% allocation to infrastructure will be added, while the current 10% target allocation to hedge funds will be eliminated and the funds moved to the equity portfolio, Mr. Berg told trustees. Cash and short-term fixed-income will be reduced by three percentage points to 3%.
A timetable for a formal vote on a new asset allocation was not set.
Among other news from the commission meeting, Michael Hitchcock's title will be changed to CEO from executive director to better reflect his duties and align the title with others at the fund. Also, the process to hire an executive recruitment firm to handle the nationwide search for a permanent CIO will take about two months, said Danny Varat, an RSIC spokesman, in an e-mail.
Separately, net-of-fees performance of the pension fund as of Sept. 30 was: three months, -4% (benchmark, - 4%); one year, -1.5% (-2.1%); three years, 5.8% (5%); and five years, 6.4% (5.6%).