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Asset AllocationOctober 19, 2022

BlackRock Touts Its Ideal Asset Mix to Hit Allocators’ Target Returns

The best chance of reaching a 7.5% gain is to go heavily into bonds, its study contends.

Times are tough for pension plans and other asset allocators to meet their bogeys. This year, many investment returns are negative. What’s the ideal asset allocation to withstand market woes and hit a 7.5% yearly investment gain?

Right now, it’s a bond-heavy portfolio, put together via exchange-traded funds—in fact one weighted 85% in fixed income, with the remainder in stocks and alternatives. That’s the conclusion of BlackRock, the world’s largest asset manager, in a study. Of course, 2022 hasn’t been good for bonds, with the Bloomberg U.S. Agg index down almost 16%.

BlackRock projects that this 85% bond allocation will achieve the 7.5% annual threshold in the next few years, which would be welcome news to pension programs and other institutional investors. Yields now are at multi-year highs, and that should continue, the study reasons. The benchmark 10-year Treasury now is yielding around 4%. Federal Reserve-induced rising interest rates are pounding bond prices, but the hiking trend should end sometimes next year, the reasoning goes. Meanwhile, stocks aren’t expected to rise anything like they used to in the near future.

By BlackRock’s reckoning, the perfect allocation to reach a 7.5% return changes with time. Starting in 2016, it was equity weighted: 60% stocks, 15% bonds and 25% alts. This period captured equities’ massive run-up.

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If BlackRock is right, retirement programs adopting its suggested allocation could use it. Pension plans, which tend to have investment return targets of 7.0% to 7.5%, sure haven’t been close to that during turbulent 2022.

Owing to tanking markets, for both stocks and bonds, public pension funds have encountered their steepest decline in funded ratios since the Great Recession, dipping to 77.9% in fiscal 2022 from 84.8% the year before, according to the Equable Institute. They suffered an investment loss of 10.4% during the year, preliminary data show.

As of last year, public retirement programs allocated 47.3% to equities and 21.4% to fixed income, per Public Plans Data.

Corporate plans were down 7.1% in the third quarter, although their funded ratios were in better shape, at 95.7%, shedding just two percentage points, a Goldman Sachs study finds. Allocation as of 2021 was 30% stocks and 50% bonds, a Milliman report says.

The University of Chicago Office of Investments Seeks New Managing Director

The University of Chicago, which holds a portfolio of nearly $14 billion, is seeking a new managing director to join its investment team.

By Dusty Hagedorn

The University of Chicago’s Office of Investments is seeking a new managing director to add to its team of 29 professionals. The office invests the University’s endowment, operating under the guidance of the University’s Board of Trustees Investment Committee.

The University of Chicago’s Office of Investments and the Investment Committee of the Board of Trustees provide stewardship of the university’s portfolio totaling nearly $14 billion, including its $8.6 billion endowment. The endowment pool is one of the 20 largest private university endowments in the U.S. The board and its investment managers seek superior rates of return while effectively managing risk and prioritizing investment objectives congruent with the long-term goals of the University of Chicago and its affiliates.

The managing director selected will work across asset classes and strategies, informing active asset allocations, while reporting to the vice president and chief investment officer. Outside of identifying, presenting, and managing investment placements, the managing director will also monitor and manage existing relationships with external investment managers and aid in the selection of new external managers.

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The office seeks someone who has experience investing across multiple asset classes with a global reach. In addition, the candidate will have a strong network in the institutional investment community. The ideal candidate will have a CFA designation, an MBA, or other advanced degree in finance, economics or another related field, and 10+ years of professional experience in investment management.

The announcement of a search for a new managing director follows the appointment of new CIO Andy Ward back in October 2021. Ward replaced the previous CIO, Mark Schmid, who retired in 2021. Schmid was awarded the University’s inaugural John Rogers Jr. Business Diversity Impact Award in 2018 and received a Lifetime Achievement Award from Chief Investment Officer in 2016. Both Ward and Schmid preceded their tenures as the CIO at The University Chicago’s Office of Investments, with a tenure as CIO of Boeing’s employee benefit plans, where Schmid emphasized training his internal staff so that they could take over leadership positions in his funds.