New Mexico SIC Considering $1.3B to Smart Beta, CalSTRS: $9B targeted to Risk Mitigation Strategies, $2.5B Commitment to Low Carbon Equity

01 Aug

New Mexico SIC Considering $1.3B to Smart Beta, CalSTRS: $9B targeted to Risk Mitigation Strategies, $2.5B Commitment to Low Carbon Equity

Among documents added to Public Plan IQ last week, were materials for Los Angeles Fire Police, Santa Barbara, North Carolina, Oklahoma Teachers, CalSTRS, New Mexico Permanent, Hawaii, Ohio Workers Comp and Tucson.

Last week New Mexico SIC released their FY 2017 Annual Investment Plan which outlined investment initiatives by asset class. Staff and RVK are reviewing the domestic equity portfolio structure, with recommendations expected at the September meeting.  Under consideration is a shift of $1.3 billion to smart beta strategies and $1 billion to private equity, with funding coming from the active and cap weighted index portfolios. Private equity and real assets are both below target levels and are expected to see increased commitments. (Download picture to see planned reallocation, page 16).

CalSTRS reported the Investment Branch Business Plans for FY 2017, the long term target rate of return remaining at 7.5%.  Established in 2015, the Risk Mitigating Strategies portfolio is currently 1% or $1.8 B, a target allocation of 3% by December 2016 and 6% by June 2017. The portfolio includes long treasury, trend following, global macro and systematic risk premia.  Mandates expected include: four trend following, one global macro, three systematic risk. Additional investment plans include: increasing internal equity management by adding international small cap, consider commodities in the inflation sensitive portfolio, promote transparency with the private equity general partners.

CalSTRS recently committed $2.5B to low carbon global passive equity.  Staff considered both the MSCI low carbon and ex-fossil fuel indexes. Concern over a potential underweight to the energy sector, guided the selection of the low carbon index. Half of the total funding will come from the global equity active portfolio.  The funding will be made in three phases, first $1.3 B to the US low carbon index, followed by $1 B to international developed and finally $200 million to emerging markets.  At the same meeting Mercer presented Investing in a Time of Climate Change.  

Research presentations added last week, included from the Ohio PERS strategic planning session: Mizuho Securities: Excess Supply / Past Credit Sweet Spot, National Association of State Retirement Administrators: Public Retirement System Issues and Trends.  By RVK for Ohio Workers Comp: Brexit Recap. Santa Barbara considered RVK’s Transition Management Education followed by Blackrock’s post analysis of transition of an active emerging markets equity mandate to passive. From Austin staff: Portfolio Construction for a Low Return World.