Pennsylvania Public School Employees' Retirement System, Harrisburg, approved a new target allocation that includes the elimination of the target to absolute return.
The $71.9 billion pension fund's board approved the changes at its Aug. 11 meeting, spokesman Steve Esack said in an email.
The changes include the elimination of the 4% target allocation to absolute return as well as changing a -7.5% target to net leverage to zero.
Chief Investment Officer Benjamin Cotton said in an Aug. 11 news release that rising interest rates have made the cost of leverage higher and has made the benefits of that leverage less certain.
Both changes will simplify the asset allocation and reduce risk, he said.
"At the same time, we can preserve the fund's diversification and liquidity while still maintaining sufficient long-term return expectations to hopefully meet or surpass our 7% annual assumed rate of return," Mr. Cotton said.
The board also approved raising the targets to domestic equities to 18% from 15% and investment-grade fixed income to 14% from 10%, and lowering the targets to international equities to 12% from 15%, inflation-protected fixed income to 9% from 11%, commodities to 5% from 7.5%, credit-related fixed income to 4.5% from 6% and public real estate to 2.5% from 4%.
Targets that remain unchanged are 12% private equity, 7% private real estate, 6% private credit and 5% each private infrastructure and public infrastructure.
As of March 31, the actual allocation was 24.8% public fixed income, 24.4% public equities, 17.2% private equity, 16.6% public real assets, 11% private real assets, 7.2% private fixed income, 5.2% cash and cash equivalents, 3.2% absolute return, 0.3% tail risk mitigation and -9.9% leverage.
