By Muskan Arora
With a goal to ensure more liquidity, the $23.3B Arizona Public Safety Personnel Retirement System has hiked its target to domestic equities slightly and reduced targets to public fixed income, international equities and global private equities.
The fund approved these changes at its recent meeting following an asset allocation review that took a long-term focus on shoring up more liquid assets for the portfolio. During the meeting, the board increased its allocation to domestic equities to 27% from 24%. It also decreased targets to international equity to 16% from 15%, global private equity to 26% from 27%, and public fixed income to 5% from 6%.
While the turmoil caused by Trump’s tariffs have resulted in the underperformance of domestic equity last month, the pension plan still believes U.S. large-cap companies can fuel growth in the portfolio to drive returns.
The pension plan allocates $5B to its domestic equities portfolio and use three external managers.
Additionally, Arizona PSPRS’s meeting minutes noted the fund has begun slowly divesting from China, to which it has main exposure to through its international equities portfolio (particularly in the finance sector).
The board pointed out that, historically, the illiquidity premium from private markets has been a significant return driver; however, global private equity underperformed during the last month. The plan invests in buyout, secondary, early-stage, non-US private equity and growth, according to meeting materials.
Allocations with targets that remained unchanged were private credit (20%), diversifying strategies (5%) and cash (2%). Both private credit and international equities outperformed their benchmark in February.
During the meeting, staff and the plan’s consultant, NEPC, suggested these changes would increase risk-adjusted returns and liquidity. The fixed income target was reduced as return expectations were below the “return hurdle.”
The consultant attributed the lower returns to volatility in March, when the U.S. dollar (USD) dropped 3.2%, closing at 104.2. The Euro rose to 1.08, up 3.87% month-to-date, while the Japanese Yen slightly depreciated 0.77% vs the USD, ending the month at 149.5. Furthermore, the S&P 500 fell 5.6% in March, contributing to a year-to-date loss of 4.3% as investors retreated amid sharp, broad-based selloffs.
The pension plan returned 6.3% fiscal year to date and 7.7% for its seven-year annualized return. As of March 31, its allocations were comprised of 24.2% to global private equity, 21.8% to domestic equities, 16.4% to international equities, 14.9% to private credit, 9.1% to public fixed income, 6.2% to diversifying strategies, 6% to cash and 1.4% to other assets.
