NC Pension System Considering Shift from Bonds

May 6, 2010 ( - North Carolina’s $69 billion pension system, the 10th-largest public system in the U.S., is considering shifting some investments out of bonds to boost returns.

State Treasurer Janet Cowell, the sole trustee for the fund, said the system needs the extra income to meet its target annual return of 7.25%, according to Bloomberg. The system had 37% of its assets in bonds at the end of first quarter.  

“We have a fairly long-duration bond portfolio that’s been a wind at our back the last few years,” Cowell said in a telephone interview with Bloomberg. “As those higher yields expire it will be harder to reach the 7.25%, so we have a challenging investment climate ahead. We’re looking to curb some of the bond exposure.”  

Bloomberg said North Carolina’s fixed-income allocation, authorized at 38%, is higher than the 29% average in fiscal 2008 at state and local funds surveyed for an October report by the National Association of State Retirement Administrators. Its stock portion, at 48.5%, is less than the 53% found in the survey.  

The news report said the state is one of only four — along with New York, Connecticut and Michigan – with its pension system headed by a single trustee and needs legislative approval to change its asset allocation.  

Lawmakers last year allowed North Carolina’s system to create two new asset classes with 5% allocations each – credit investments, such as high-yield bonds and Federal Reserve term asset-backed securities, and inflation-resistant vehicles such as commodities, timber and Treasury inflation- protected securities. Cowell said she will consider asking for authorization to invest in hedge funds and private equity next year.  

The fund increased 3.3% in the first quarter, up from the 2.5% return in the fourth quarter of 2009. It has gained 17% in the fiscal year that began July 1, but Cowell said that is not enough to make up for the 20% loss in calendar 2008 without increased contributions from the state Legislature.