Ohio Public Employees' Retirement System, Columbus, created a new target to private credit and increased targets to private equity, real estate and commodities for its $87.9 billion defined benefit plan.
The system's board at its Jan. 18 meeting approved the recommendations of investment consultant NEPC to make the changes following the completion of an asset-liability study, system spokesman Michael Pramik said in an email.
The changes include increasing the overall target to alternatives to 33% from 27%. Within alternatives, the board approved the creation of a target of 1% of total DB plan assets to private credit. The board also hiked targets to private equity to 15% from 12%, real estate to 12% from 10% and commodities to 2% from 1%, while decreasing the target to opportunistic investments to 2% from 3%. The target to real estate investment trusts remains unchanged at 1%.
The board also approved dropping the targets to public equity to 43% from 44%, public fixed income to 22% from 24% and risk parity to 2% from 5%.
Within public equity, the domestic equities target increases to 22% of total DB plan assets from 21%, while international equities drops to 21% from 23%.
Within public fixed income, high yield goes up to 3% of total DB plan assets from 2%, a new investment-grade credit target of 2% is created, while core fixed income drops to 9% from 11% and emerging markets debt drops to 1% from 4%. Treasury inflation-protected securities, U.S. Treasuries and securitized debt remain unchanged at 3%, 3% and 1%, respectively.
In a memo to the board included with meeting materials, Craig Svendsen, partner at NEPC, said the increase to alternatives is due to staff and NEPC's belief that "there is additional room to invest in other less liquid investments" and they should come with higher returns. He also noted there was a practical element specifically in hiking the real estate and private equity targets, because the actual allocations to the asset classes are currently higher than the current targets due to the poor public equity and fixed-income returns of the past year.
Regarding the drop in the risk parity asset class, Mr. Svendsen said, "NEPC and staff believe the near-term environment might be challenging for risk parity while at the same time we believe the environment is attractive for credit-oriented fixed-income investments."
Mr. Pramik said nothing has been determined yet regarding external managers as a result of the target changes.
As of June 30, the DB plan's actual allocation was 22.1% domestic equities, 20.3% international equities, 15.1% private equity, 13.5% real estate, 10.2% core fixed income, 3.6% risk parity, 3.2% emerging markets debt, 3.1% TIPS, 2.6% high yield, 1.8% U.S. Treasuries, 1.4% each commodities and securitized debt, 0.8% REITs, 0.7% opportunistic investments, and the rest in cash equivalents and hedge funds.