New Mexico Public Employees looks to increase alternatives exposure

The board of the New Mexico Public Employees Retirement Association is expected to consider a new asset allocation as early as its Oct. 27 meeting that would increase its exposure to alternative investments.

The investment committee of the $16.6 billion, Santa Fe-based pension plan on Sept. 29 voted to recommend an asset allocation that would increase global equity to 38% from 35.5% and credit-oriented fixed income to 19% from 15%. It would also reduce its risk reduction and mitigation allocation to 17% from 19.5%, real assets to 18% from 20%, and multi-risk allocation to 8% from 10%.

Within global equity, the new allocation would trim global public equity to 16% from 16.5% and global low-volatility public equity to 5% from 7%. At the same time, the allocation proposal would add 5 percentage points to the private equity allocation, raising it to 17%.

Within risk reduction and mitigation, pension fund officials would keep core U.S. bonds at 17%, but eliminate its 2.5% allocation to a hedged core global bond suballocation. Within credit-oriented fixed income, New Mexico PERA would increase its hedged global high-yield suballocation by 2 percentage points to 4%, eliminate its 3% emerging market debt suballocation, increase alternative credit by 3 percentage points to 7%, and boost private credit by 2 percentage points to 8%.

Its real assets portfolio would decrease liquid real assets by 2 percentage points to 3%, while keeping private real estate and private real assets at 7% and 8%, respectively. Currently, its multi-risk allocation is solely made up of risk parity.

The new asset allocation is designed to take advantage of additional illiquidity premium opportunities, modestly increasing the portfolio's risk profile, while boosting the portfolio's return potential, according to a recommendation by the pension fund's general investment consultant, Wilshire Advisors.

Investment committee and board member Stephen J. Neel said at the Sept. 29 meeting that the key takeaway is that the pension plan is "moving toward a less traditional, old school asset allocation."

Mr. Neel, who is also deputy CIO of the $15.5 billion New Mexico Educational Retirement Board, Santa Fe, added that the proposed new asset allocation "is very beneficial."

"It (the proposed asset allocation) is directionally where we should be going" and adds assets that have done very, very well for the pension plan, Mr. Neel said.

Separately, New Mexico PERA reported a -1.67% return for its fiscal year ended June 30, outperforming its -10.51% benchmark. Pension fund officials earned an annualized 6.3% for the three years, above its 3.03% benchmark; 6.44% for the five years, outperforming its 4.26% benchmark; 7.49% for the 10 years, above its 6.38% benchmark; 6.5% for the 20 years vs its 6.25% benchmark; and 7.87% for the 30 years ended June 30 vs. 7.12% for the benchmark.

The best-performing asset class for the one-year period was real assets, with a 15.56% return, followed by global equity at -2.28%, credit-oriented fixed income at -4.68%, risk reduction a mitigation at -8.96% and multi-risk allocation at -14.6%.

The pension plan had 34.8% invested in global equity, 19.6% in risk reduction and mitigation, 15% in credit-oriented fixed income, 21.8% in real assets and 8.9% in risk parity.