The changes were recommended by a consulting firm, the board’s advisory council and its executive director, Ash Williams, the Associated Press reported.The changes were expected to reduce the fund’s risk profile while boosting its return by $2.1 billion over 15 or more years, said Rowland Davis, an actuary for Ennis, Knupp & Associates of Chicago.
According to the news report, the board currently has had no hedge fund investments. The revised policy targets 4% of the pension assets for hedge funds during a first phase and 6% if the Legislature changes the law.
The board now invests 37.4% of the pension fund in domestic equities and 20% in foreign equities – 57.4% combined. The new policy would lump them together as global equities and reduce the total to 56% on an interim basis and to 52% if the law is changed, the report said.
Current law limits alternative investments, including hedge funds, private equity and venture capital, to no more than 10% of the pension fund’s investments.
The revised policy puts hedge funds, debt oriented funds and infrastructure investments in a new category called strategic investments now totaling 1.8% but with an interim goal of 6% and 11% if the law is changed.Private equity will increase from 3.5% now to 4% in the transitory phase and could go to 5% with a law change.
The policy also calls for small reductions in fix income assets and a slight increase in real estate while leaving cash holdings unchanged.