Texas County & District Retirement System's board of trustees approved lowering the long-term assumed rate of return for the $35.7 billion system to 7.5% from 8% during a meeting Thursday.
"TCDRS' long-term outlook anticipates rates and returns (will) remain below historic norms. Expectations of returns have decreased across all asset classes ... due largely to rate cuts and unprecedented stimulus resulting from the pandemic," a news release from the system said Thursday.
CIO Casey Wolf said in an email Friday that the fund’s asset allocation was adjusted “to improve portfolio returns by increasing private equity and direct lending by 5 (percentage points) each,” bringing the target for private equity to 25% and direct lending to 14%.
Mr. Wolf said funding for the new private equity and direct lending targets came primarily from public equity, which was reduced to 25% of plan assets from 32% as of Dec. 31, and from hedge funds, which now have a 6% allocation, down from 10%.
The lower investment return assumption "will result in increased employer contribution rates," the release said. "TCDRS is using tools such as reserves to help smooth the impact of this adjustment on employer rates."
TCDRS also reminded the more than 800 employers that participate in the system that they "have the flexibility and local control to annually adjust their benefits to meet workforce needs and budgets," according to the release.