Investment consultant Aon Investments USA conducted an asset allocation study, and in a presentation included with June 27 investment advisory council 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% from 53%
Other changes including raising the target to fixed income to 21% from 18% and also 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 in its June 27 presentation said the modestly higher target and duration extension were recommended to "enhance portfolio diversification and fixed income's expected risk-adjusted returns."
Also, the system is increasing its dedicated target to real estate to 12% from 10%. Within the asset class, the target to core goes up to 10% of total assets from 7.7% and noncore to 2% from 1.3%, while the 1% target to real estate investment trusts is being eliminated.
Also, the system's target for private equity is being hiked to 10% from 6%, while a new 7% target to credit is being created "to provide diversification via credit premia across public and private markets," according to Aon's June 27 presentation. The active credit target is being split into direct lending and multiasset public credit, with targets of 4% and 3%, respectively, of total FRS assets.
The above changes are also resulting in a restructuring of the FRS' strategic investments asset class, with the target dropping to 4% from 12%.
The existing 12% target is split into 6% of the total fund into other (diversifying, insurance-linked securities and hedge funds), 4% public and private equity, and 1% each private debt and real assets. The new target will now 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 remains the same at 1%.
As of July 31, the FRS' actual allocation was 51% global equity, 15.9% fixed income, 11.2% each real estate and strategic investments, 9.3% private equity and 1.4% cash and cash equivalents.
Florida State Board of Administration oversees a total of $241.4 billion in assets.