Updated with correction
Virginia Retirement System, Richmond, agreed to revise its asset allocation, change three benchmarks and lower its assumed rate of return, following votes at the $82 billion pension fund's Thursday board meeting.
The actuarial assumed rate of return will drop to 6.75% from the current 7% retroactive to July 1 and will be applied to 2019 actuarial valuations. The change was recommended following an asset liability study by Verus and decisions related to the asset allocation policy changes.
The asset allocation changes will be phased in, pending board approval, beginning in January and will take three or more years. They represent a continued move away from public markets into private ones. "It's a continuation of the feeling that private markets are just more advantageous in a risk/return sense than public markets," Chief Investment Officer Ronald D. Schmitz said in an interview.
The new long-term targets are 34% public equity, 15% fixed income, 14% credit strategies, 14% real assets, and 14% private equity, with the rest to be determined.
The current asset allocation target, approved by the board in June 2016, is 40% public equity, 16% fixed income, 14% credit strategies, 14% real assets, 12% private equity, 2% the PIP internal opportunistic program and 3% MAPS.
The benchmark changes will go into effect Jan. 1 for public equity, credit strategies and fixed income.
In public equity, Virginia will go to a new MSCI ACWI IMI index, dropping a 50% hedged index for an unhedged one and a peer universe index for hedge funds.
In credit strategies, Virginia will switch to a blended benchmark of 60% S&P/LSTA Performing Loan index, 30% ICE BofAML BB/B U.S. High Yield Constrained index and 10% Bloomberg Barclays U.S. Aggregate Bond index.
The fixed income benchmark will change to a blend 80% Bloomberg Barclays U.S. Aggregate Bond Index, 10% J.P. Morgan EMBI Global Core index and 10% Bloomberg Barclays U.S. High Yield Ba/B 2% Issuer Cap index from 100% Bloomberg U.S. Aggregate Bond index.