Arkansas Teacher Retirement System hired Baird Advisors to manage $800 million in core-plus fixed income as part of an effort to trim the $21.3 billion pension fund's risk exposure by shifting assets to fixed income from equities.
The Little Rock-based board, at a Feb. 5 meeting, unanimously voted to lift Arkansas Teachers' fixed-income target to 20% of its portfolio from 15%, while trimming its equity allocation to 48% from 53%.
The board's decision to raise the pension fund's equity holdings and reduce fixed income more than five years ago had paid off handsomely but "circumstances have changed," said Mark White, the pension fund's executive director, speaking earlier in the day at a meeting of the pension fund's investment committee.
With higher interest rates now and a number of challenges on the horizon that could cloud what has been a strong environment for equities going forward, it makes sense to pursue a modest reduction in risk, White said.
Funding for the Baird mandate will come from the reduction in the public equity allocation, with the board's investment consultant, Aon, recommending proportionate reductions "across appropriate U.S. equity funds," according to board materials distributed for the Feb. 5 meeting.
The Baird mandate would come to roughly 4% of the Arkansas Teachers' portfolio. The remaining 1% to be shifted from equities will be added to an existing passive fixed-income index strategy managed by State Street Global Advisors.
Milwaukee-based Baird Advisors manages more than $31 billion in its core-plus strategy and $131.5 billion overall.
The firm would charge Arkansas Teachers a fee of 18 basis points.
