The new asset mix is designed to potentially achieve higher returns during the next five-to-10 years.
Callan Associates, the Retirement Board’s investment consultant, said it would support the new target mix if the board’s proposed pension reform plan changes are adopted in the near future.
The new asset mix targets are:
- Broad U.S. equity – 31%;
- Broad international equity – 26%;
- Broad U.S. fixed income – 18%;
- Real estate – 10%;
- Private equity – 7%;
- Opportunistic/diversified – 7%; and
- Liquidity reserve – 1%.
Callan predicts that the new asset mix could earn a return in excess of 8% over the long-term (30-year projection), though in the short-term (five-to-10 years), the mix is projected to return approximately 7.6%. Callan reported to the board that if the proposed pension reform plan changes are not implemented in a prompt manner, a more conservative portfolio would be recommended to meet the system’s liquidity needs to pay benefits.
In August 2011, the Retirement Board asked Callan to conduct an asset-liability study to help determine reasonable risk and return expectations. Asset-liability studies are typically conducted every three-to-five years to acknowledge change and uncertainty in the capital markets and to confirm an investment policy to meet return and risk objectives in relations to funding, accounting and policy goals.
STRS Ohio’s Investment staff will begin to develop acceptable target ranges for each asset class and will incorporate the newly approved asset mix target in its Investment Plan before implementing the changes.