Arizona Public Safety Personnel Retirement System, Phoenix, adopted a new target asset allocation, which includes increases to domestic equities, international equities and private credit, said Mark Steed, chief investment officer.
The $9.9 billion pension fund's board approved the new allocation at its June 26 meeting. Mr. Steed said the pension fund conducted an asset allocation review after recent state pension reforms changed its liability profile.
Those reforms included a 2016 referendum by Arizona voters that repealed a permanent benefit increase for members of the first two tiers of a three-tier system and created a new cost-of-living-adjustment formula.
The new target allocation consists of three larger portfolios, into which other asset classes will be included. Capital appreciation consists of total fund targets of 23% global private equity, up from the old 12% target; 20% domestic equities, up from 16%; and 18% international equities, up from 14%. Previous targets of 10% to real estate and 9% to real assets will be reclassified as capital appreciation assets within global private equity.
Contractual income will consist of targets of 22% private credit, up from 16%; and 3% core fixed income, down from 5%.
Diversifying strategies, the third portfolio, will have a target of 12%. Investments classified within the old 12% global trading strategies target, which includes hedge funds, and the old 4% risk-parity target, will be reclassified as diversifying strategies. Some real assets and real estate managers could be reclassified within this target as well.
A target of 2% to cash will remain unchanged.
Mr. Steed said the first step will be to reclassify existing managers within the new target asset classes. Then, there will likely be some redemptions from liquid assets such as hedge funds and core fixed income, Mr. Steed said.
The pension fund does not issue open requests for proposals.
As of Dec. 31, the actual allocation was 15.9% private credit, 15.3% domestic equities, 13.9% private equity, 13.8% international equities, 11.1% global trading strategies, 8.8% real assets, 8.1% real estate, 5.1% fixed income, and 4% each risk parity and short-term investments.