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.
Investment consultant Aon Investments USA conducted an asset allocation study, and in a presentation included with meeting materials said the recommended changes were made to improve expected risk-adjusted returns, primarily through lower expected volatility by diversifying away from public equities, dropping that target to 45%.
The proposed target changes include increasing the target to fixed income to 21%, which includes extending the duration of the portfolio to "full aggregate" by changing the benchmark for the portfolio to the Bloomberg U.S. Aggregate Bond index from the Bloomberg U.S. Intermediate Aggregate Bond index. Aon said the modestly higher target and duration extension were recommended to "enhance portfolio diversification and fixed income's expected risk-adjusted returns."
Also increased would be the system's dedicated target to real estate to 12%. Within the asset class, the target to core would be increased to 10% of total assets from 7.7% and non-core to 2% from 1.3%, while the 1% target to real estate investment trusts would be eliminated.
The dedicated target to private equity would also be hiked, to 10%, and a new 7% target to active credit would be created "to provide diversification via credit premia across public and private markets," according to Aon's presentation. The active credit target would be split into direct lending and multiasset public credit, with targets of 4% and 3%, respectively, of total FRS assets.
The above changes also would result in a restructuring of the FRS' 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 allocation approved by the IAC on Tuesday, the overall target would drop to 4% and be split into 2% of total assets to hedge funds and 1% each to insurance-linked securities and real assets.
The target to cash and cash equivalents would remain the same at 1%.
As of Feb. 28, the FRS' actual allocation was 49.6% global equity, 16.4% fixed income, 11.8% real estate, 11.4% strategic investments, 9.6% private equity, and 1.2% cash and cash equivalents.
Florida State Board of Administration oversees a total of $235.2 billion in assets.