The Minnesota State Board of Investment, St. Paul, approved a resolution to divest from publicly traded companies that derive 25% or more of their revenues from the extraction and production of thermal coal within the $65.2 billion of defined benefit plan assets managed by the board.
During a May 29 conference call meeting Mansco Perry III, executive director and chief investment officer, told board members that the action is "consistent with our fiduciary duty" in considering the ESG risks and opportunities within the investment portfolio.
The resolution directs Mr. Perry to identify the money managers that invest in companies that exceed the thermal coal revenue threshold and instruct them to remove those companies from SBI portfolios before Dec. 31.
During the meeting, Keith Ellison, Minnesota's attorney general and an SBI board member, commended Mr. Perry, members of the board's investment advisory council and investment staff for taking action to remove coal producers from the defined benefit plan portfolio in line with the SBI's ESG initiatives.
On May 29, the board also approved a resolution to change the asset allocation for the defined benefit plan portfolio to improve liquidity with a focus on the plan's fixed income portfolio.
The new investment line up increases the allocation to fixed income to 25% from 20% by moving the current 2% cash allocation into the fixed-income portfolio and transferring 3% of the 53% public equity allocation into fixed income. The DB portfolio's 25% allocation to private markets remains unchanged.
The new allocation for the fixed-income portfolio will be long-dated U.S. Treasury bonds, 40%; core/core-plus bonds and return-seeking fixed income, 40%; and 20% in a combined cash and short-duration laddered U.S. Treasury bond portfolio. The previous fixed-income allocation was split evenly between long-dated Treasury bonds and core/core plus bonds.
In an interview, Mr. Perry said the portfolio revamp "still is a work in progress," noting that he and the investment staff will be reviewing the details of portfolio construction and finalizing the exact makeup of the fixed-income portfolio in the coming months.
For example, Mr. Perry said his team is considering the addition of income-producing fixed income, possibly including high-yield debt, emerging-market debt and structured credit managers to the core/core plus bond portfolio to "balance" the new cash/Treasuries portfolio.
The public equities portfolio also will be under review as part of the overall portfolio reassessment, but Mr. Perry said it's too soon to speculate what changes might be made.
Also undergoing review are the additions of a cash overlay program to facilitate rebalancing and improve portfolio liquidity and a currency overlay to better manage the non-dollar exposure from the portfolio's international equity investments, Mr. Perry said.
He stressed that it's too early to say whether the overlays will be managed internally or by money managers.
The SBI managed a total of $91.5 billion as of March 31, which in addition to the defined benefit plan assets, included $7.1 billion in participant-directed retirement plans and $19.2 billion managed in other state funds.