By David G. Barry

 

The Arizona State Retirement
System (ASRS) has
gotten the go-ahead to implement a new asset allocation plan that will increase
its private credit and public equity targets.

ASRS’s board of trustees
voted to increase the $50.2 billion system’s credit target to 23% from 20% and
its public equity target to 44% from 40%. It also moved to reduce its real
estate target to 17% from 20% and decrease interest rate-sensitive strategies from 10% to 6% – all of
which will be in Treasuries.

The plan also breaks out private equity from equity but maintains its 10%
target. ASRS had a 12.7% allocation to the sector at the end of June.

The asset allocation change comes following a fiscal year where ASRS was one of
the few public pension funds to report a positive result, generating a return
of 1.1%. The system has a 7% target return.

The staff will now work to implement the changes – ones that may not take too
much work given the system’s current allocation levels.

For instance, ASRS at the end of July had $11.4 billion, or 22.7% of its portfolio, in credit –
70% of which are in private credit.

It should be noted that at
that level, ASRS has one of the highest allocations to private credit of any
public pension system.

It will have to do a little
bit of work to increase its public equities total, which as of June 30 was at
36%.

On the real estate side,
ASRS had 19.6% of its assets in the segment at the end of July.

As ASRS Director Paul
Matson explained to the system’s investment committee in August, staff
still believes strongly in
real estate but sees credit – especially private credit – as providing
“somewhat more long-term liquidity and somewhat better pricing.”

 

According to data presented at the
investment committee meeting, ASRS’s credit portfolio generated a 11.3%
one-year return and a 9.8% three-year return, well above its 5.8% and 6.8%
benchmarks for those periods.