Ohio Public Employees Retirement System, Columbus, is considering raising its $87.9 billion defined benefit plan's overall target allocation to alternatives and lowering targets to international equities and core fixed income.
The retirement system is conducting an asset-liability study, and staff and NEPC announced their recommendations at the Nov. 16 board meeting.
The board is expected to vote on the recommendations at its meeting in January, spokesman Michael Pramik said in an email.
The recommendations include raising the overall target allocation to alternatives to 33% from 27%. Within alternatives, the target to private equity would increase to 15% of the total pension plan assets from 12%, real estate to 12% from 10%, commodities to 2% from 1%, and the system would also create a new 1% target allocation to private credit. The target to opportunistic investments would fall to 2% from 3% and the target to real estate investment trusts would remain unchanged at 1%.
Also, staff and NEPC recommended dropping the target to public fixed income to 20% from 24%. Within the allocation, a new allocation of 1% of the overall DB plan assets would be created for investment-grade credit, the target for core fixed income would fall to 9% from 11% and emerging markets debt would fall to 1% from 4%. Targets that would remain unchanged are 3% each Treasury inflation-protected securities and U.S. Treasuries, 2% high yield and 1% securitized debt.
The overall target to public equities would also fall slightly to 43% from 44%. The target to international equities would drop to 21% of overall pension plan assets from 23%, and the target to domestic equities would increase to 22% from 21%.
The target to risk parity would also drop to 4% from 5%.
In a presentation included with Nov. 16 board meeting materials, NEPC said the recommended new asset allocation has similar long-term return and risk characteristics as the current allocation and the expected return of 7.4% exceeds the discount rate of 6.9%.
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.