The board of Sacramento County (Calif.) Employees' Retirement System approved a revision in its asset allocation targets and the termination of a mandate manager at its Wednesday board meeting.
Specifically, the board of the $12.1 billion pension fund agreed to increase its cash allocation target to 2% from 1% (with a range of between zero-3%) and to reduce the liquid real return target allocation to 1% from 2% (with a range of zero-3%), according to the agenda of the meeting.
In explaining these measures, SCERS cited in the agenda that "with interest rates re-set to higher levels, going forward return expectations for fixed income and cash meaningfully increased." In addition, SCERS stated that increasing the cash allocation to "serve as a liquidity buffer" is "important to maintaining sufficient plan liquidity."
The liquid real return asset class at SCERS is split into two mandates, one-half with State Street Global Advisors' real return overlay program proxy, which is passively managed, and the other half with an actively managed diversified real assets mandate managed by Brookfield Asset Management, the agenda noted.
In connection with the reduction in the liquid real return allocation, the board agreed to terminate the Brookfield diversified real assets mandate, which is currently valued at approximately $108 million, or 0.9% of the total portfolio.
The agenda cited that the liquid real return portfolio has a "muted expected return with meaningful volatility" and that reducing this allocation "will take some equity and credit risk off the portfolio."
The Brookfield mandate returned -10.2% in 2022, SCERS stated, and the Brookfield mandate has "generated moderate returns since it was added in 2019, as it was negatively impacted by the challenging inflationary period of 2022," the agenda noted. In contrast, the State Street Real Return proxy has "provided better inflation protection than the Brookfield mandate," the agenda noted.
SCERS still has multiple mandates with Brookfield across several asset classes, including three under real assets and one each under real estate and private credit. Excluding the liquid real return mandate, Brookfield manages $320 million for SCERS.
The board has authorized investment staff and investment consultant Verus Advisory to develop a transition plan to sell the Brookfield liquid real return assets and reinvest the proceeds into the cash allocation.
Brookfield could not be immediately reached for comment.
SCERS CIO Steve Davis could not be immediately reached for further details.