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.