Investment consultant Aon Investments USA is assisting with the study. In a presentation included with March 28 investment advisory council meeting materials, Aon said it had initiated an asset allocation review in December and since then has collaborated with SBA investment staff on "updated capital market assumptions, equity risk premium and implementation constraints to generate updated efficient frontiers, followed by updated liquidity analysis and asset-liability projections." In the presentation, Aon provided an efficient frontier portfolio analysis, which included scenarios with caps on alternatives of 18% and 26%.
Aon's takeaways from the analysis included that improvement in risk-adjusted returns could be made through greater diversification away from global equity into both public and private return-seeking fixed income, core fixed income and real estate. The consultant also noted that aggregate core fixed income is preferred over intermediate aggregate fixed income. Aon's presentation also noted that "improved results assume greater long-term targets to private equity, real estate and hedge funds, whereas currently some of these exposures are gained via Strategic Investments and are more fluid or tactical rather than long-term policy targets."
The Florida Retirement System's current target allocation is 53% global equity, 18% fixed income, 12% strategic investments, 10% real estate, 6% private equity, and 1% cash and cash equivalents.
In its presentation, under both scenarios with either an 18% alternatives cap or a 26% alternatives cap, Aon lowered the target to global equity to 40% from 53% and raised the target to private equity to 10% from 6%. Also under both scenarios, the targets to fixed income would also change. The current 18% target is for intermediate duration, and under both scenarios, a new 3% target specifically to public return-seeking fixed income would be created, with a 25% aggregate duration target created under the "18% alts" scenario and a 21% target created under the "26% alts" scenario.
The presentation also said any asset allocation changes might modify the role of the strategic investments asset class. Currently, the 12% target is split into 6% of the total fund into other (diversifying, insurance-linked securities, hedge funds), 4% public and private equity, and 1% each private debt and real assets. Under the "18% alts" scenario, the target to strategic investments would drop to 8% with 5% to other, 2% to private debt and 1% to real assets. Under the "26% alts" scenario, the target to strategic investments would rise to 13%, with 7% other, 4% private debt and 2% real assets.
As of Jan. 31, the actual allocation was 50% global equity, 16.4% fixed income, 11.5% real estate, 11.1% strategic investments, 9.4% private equity, and 1.6% cash and cash equivalents.
The Florida State Board of Administration oversees a total of $239.6 billion in state assets.
Lamar Taylor, interim executive director and chief investment officer, referred questions to Ms. Oglesby.