State of Wisconsin Investment Board, Madison, approved changes to the asset allocation of the Wisconsin Retirement System's $130.7 billion Core Trust Fund, including increases to the targets to inflation-sensitive assets and private equity/debt.
The board, which manages a total of $157.9 billion in assets, approved the changes at its Dec. 15 meeting, spokeswoman Vicki Hearing said in an email.
Among the changes is a slight increase in the target to public equity to 52% from 51%, inflation sensitive assets to 19% from 16%, and private equity/debt to 12% from 11%, and a decrease in real estate to 7% from 8%.
Also, the multiasset portfolio target of 4% is being eliminated, although the strategies will remain and be reallocated to the inflation-sensitive assets and public equity asset classes.
The public fixed-income target will remain the same at 25%. Targets total 115% due to leverage.
Along with the changes in asset-class targets were structural changes in the public equities and public fixed-income subasset classes. Within public equities, the board reduced the target to global equities to 77.6% of the public equity portfolio from 83.6% and increased the targets to domestic small-cap equities and international small-cap equities to 6.9% and 4.6%, respectively, from 6.1% and 4.4%.
The board also increased the overall target to emerging markets equities to 10.9% from 6.1%. That target had been categorized as emerging markets large-cap equities, and the asset class is now broken out to 7.5% emerging markets ex-China, 1.9% China equities and 1.5% emerging markets small-cap equities.
Within public fixed income, the board decided to create a new 4% target to long-duration U.S. Treasuries in order to maintain duration exposure and add a 10% target to levered loans.
Other targets newly approved within public fixed income are 24% each U.S. government fixed income and U.S. investment-grade fixed income, down from 42.8% and 34%, respectively; 20% high-yield fixed income, up from 7.5%; 10% emerging markets debt (blended currency), up from 7.5%; and 8% mortgage-backed securities, down from 8.2%.
Edwin Denson, executive director and chief investment officer, said in a Dec. 15 memo to the board that "the key theme from the review and discussion of other strategic issues was that the next 10 years will be challenging for the fund from a total return perspective, as returns on assets are generally expected to be low relative to longer-term expectations in part because of higher than average realized returns from risk asset over the last few years."
As of Sept. 30, the core trust fund's actual allocation was 49.6% public equities, 25.2% public fixed income, 12.8% private equity/debt, 6.9% real estate, 3.4% multiasset strategies, 2.9% inflation-sensitive assets and -0.8% cash and overlays.
Mr. Denson was not available to provide further information.