Asset owners rebalance in tough markets

The $204 billion Texas Teachers’ Retirement SystemAustin is counting on its longevity to ride out periods of market volatility, CIO Jase Auby said in an email.

“Our time horizon generally allows us to be unresponsive to geopolitical events, as their impact on the markets tends to dissipate over a time horizon of six to 12 months.”

“On the other hand, we are paying attention to rising global inflation and are positioning ourselves with a slight tilt to that risk at the moment,” he said.

Mr Auby declined to say which asset class was increased to offset the impact of inflation.

Other pension fund managers said they have made asset allocation changes in 2021 and 2022 with increases in private equity, real assets, risk parity and other strategies that will likely help support their portfolios in volatile market and inflation conditions.

Massachusetts Retirement Reserves Investment Management Board, Boston, relies on diversification within the $104.3 billion defined benefit plan to generate returns, Michael G. Trotsky, executive director and CIO of PRIM, said in an email. “PRIM is well positioned to navigate these volatile markets,” he said.

PRIM’s board approved a new asset allocation for 2022 at a Feb. 17 meeting that cut global equities to a range of 33% to 43% from 34% to 44% in 2021 and increased the target range for private capital to 12%-18% from 11% to 17% the previous year.

Mr Trotsky said the new asset allocation “reflects an investment philosophy that has historically performed well both in bull markets and perhaps more importantly, in bear markets.”

Investment officials at Indiana’s $41 billion public retirement system in Indianapolis believe that “asset allocation is the single most important determinant of long-term investment results. “, says an emailed statement.

In May 2021, “the board approved a new asset allocation that is expected to achieve the pension fund’s target rates of return net of fees, while minimizing risk. The INPRS manages the defined benefit scheme within the limits of the strategic asset allocation,” the staff said in the statement.

On the positive side, INPRS’ new range of asset classes raised the risk parity allocation from 12% to 20%; inflation-indexed fixed income bonds were increased to 15% from 7%; the real estate target has increased from 7% to 10%; raw materials increased by 8% to 10%; and the private markets target increased slightly from 14% to 15%.

The target for the system’s fixed income inflation-linked bonds remained at 20%. Absolute return was reduced to a 5% allocation from 10% and public stocks were reduced to 20% from 22%.

INPRS’ asset allocation is 115% due to leverage.

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