When the Public Employee Retirement System of Idaho examined its asset allocation with an eye toward the next decade, one simple question dominated the exercise.
It was the same basic jumping-off point that the $19.6 billion pension fund has used for a quarter century: "What's our stock/bond split?"
For Chief Investment Officer Bob Maynard, the simple answer harkens to the old-fashioned 70/30 model that has faded from relevance over the years.
Idaho is one of the last public pension funds still using a conventional asset allocation rooted in modern portfolio theory and its core assumptions about risk.
All but 12% of the fund's assets are strategically earmarked to either stocks or bonds. That remaining portion, invested in private assets, is viewed as an important diversifier. But private markets haven't particularly moved the needle.
Long term, PERSI's performance is solid. It's 25-year annualized return is 8.6%, putting it, Mr. Maynard says, in the top quartile.
There are a handful of other so- called conventional allocators, including the $11.4 billion Oklahoma Public Employees Retirement System, Oklahoma City (roughly 70/30).
The $44.6 billion Public Employees' Retirement System of Nevada, Carson City, is 60% stocks in two index funds with another 28% passively pegged to U.S. bonds.
Industry members continuously debate the merits of the old faithful 60/40 mix or a conventional 70/30 approach vs. the so-called endowment model, with its greater reliance on alternatives vs. an array of other more newfangled asset-mix strategies, including risk parity, factor-based investments and global tactical asset allocation. Regardless of the diversification approach taken or the labels that get used, most institutional investors with open funds seem to favor having a preponderance of riskier, return-seeking assets relative to fixed income, once considered a portfolio cornerstone.
As of Sept. 30, the public pensions plans within the largest 200 U.S. plan sponsors had, on average, 21.1% of their total portfolios in domestic fixed income, according to Pensions & Investments' data.
The average U.S. public DB plan fixed-income allocation is up from 20.8% one year prior. These plans had 2.6% of their total portfolios in global/international fixed income, up from 2.1% a year earlier.
Callan's large public fund clients tend to have between 20% and 25% in global fixed income, according to Jay Kloepfer, head of the firm's capital market research team.
"Over the years, we've seen public pension funds tiptoe away from 60/40," Mr. Kloepfer said.
"If anything, it's now 80/20, an even greater reliance on return-seeking assets."