By Lauren Bailey

The $6.2B Kern County Employees Retirement Association is restructuring its fixed income allocations to ensure the fund meets its objectives of providing liquidity and risk mitigation.

In 2023, the pension plan conducted a strategic review of its asset allocations, which determined a structural shift was needed to de-risk the fixed income portfolio so it could meet its objectives. During a recent board meeting, the plan approved two new asset allocations totaling $300M for its fixed income credit and core allocations as part of the restructuring, as well as a reallocation of funds within its domestic equities portfolio.

“KCERA performs periodic reviews of every asset class in the portfolio in order to ensure the allocations are meeting their stated goals and objectives, to evaluate strategy, and to consider opportunities for improvement,” said Daryn Miller, the plan’s chief investment officer, in an email to Markets Group.

According to its recent investment committee meeting minutes, 25% of its asset allocations are to fixed income vehicles, with 10% toward credit for income generation and diversification, while 15% is directed toward core products for liquidity and risk mitigation. The 5% allocation to securitized products is a part of the plan’s broader credit allocation. As of Mar. 30, 2025, $529M (8.6% of plan assets) were in credit allocations.

KCERA plans to allocate $150M each to Schroders Investment Management and Guggenheim Partners Investment Management, both of which include vehicles with tailored investment mandates and that invest primarily in investment grade securitized product fixed income securities. The allocations fulfill the 5% securitized credit allocation of the fund’s 10% credit allocation.

Currently, the pension plan has exposure to U.S. equities within its 33% allocation to global public equities; however, it is underweight in domestic equity exposure, relative to its benchmark, the MSCI ACWI IMI Index. Its domestic equity asset class is 18%, split between four managers — Mellon DB SL Stock Index Fund (12.5%), PIMCO StocksPLUS (2.6%), AB US Small Cap value Equity (1.5%), and Geneva Capital Small Cap Growth (1.5%).

KCERA also plans to withdraw a partial redemption of its allocation to the Mellon Stock Index Fund, totaling $150M, to steer toward a Chilton Capital Management active U.S. large-cap equities fund.

In a memo included in the meeting minutes, KCERA’s investment committee shared that Chilton Capital believes “equity markets have inefficiencies that skilled managers can exploit to achieve exceptional returns.”

Despite market volatility, the plan noted valuations for U.S. large-cap stocks are at record highs. It also pointed out that recent dominance of mega-cap growth stocks has resulted in high index concentration, with roughly a third (34%) of the S&P 500 concentrated in 10 large-cap stocks.

Chilton Capital’s strategy suggested a less concentrated approach with wider dispersion of returns between names, sectors, and market capitalization could create an attractive environment for active management, according to the meeting minutes.

KCERA’s investment committee noted the shift would result in the percentage of active management in the domestic equity allocation rising from 16.6% to 30.7% (as of March 31st, 2025).