The Florida State Board of Administration has voted to reduce the state’s allocation to public equities and added active credit as a new target asset class, according to the administration’s most recent board meeting.
The state will decrease its allocation to public equities by eight percentage points and increase allocations to fixed income and private equity by five percentage points and four percentage points, respectively. The new asset allocation followed the completion of an asset-liability study conducted during the last year.
The board approved a new asset allocation with target allocations of 45% to global equity, 21% to fixed income, 12% to real estate, 10% to private equity, 7% active credit and 4% to strategic investments. Equities, fixed income and private equity previously had target allocations of 53%, 18% and 6%, respectively.
The new allocation also sets policy ranges for each asset class as follows: global equity, 35% to 60%; fixed income, 12% to 30%; real estate, 4% to 20%; private equity, 6% to 20%; active credit, 2% to 12%; and strategic investments, 2% to 14%. The new allocations were adopted on October 25 and will be effective January 1, 2024.
In September, the board put forward several proposals to change the fund’s asset allocation, as the fund was returning 6.3%, roughly 240 basis points worse than its target. In that meeting, FBLA’s consultant, Aon, suggested decreasing the allocation to private equity and increasing the allocation to fixed income to reduce the portfolio’s risk profile.
The goal of the new allocation is to reduce risk, reduce the volatility of the Florida Retirement System’s pension plan assets and outperform during market declines. The new allocation also aims to increase exposure to opportunistic investments outside of traditional investments, such as direct investments, capital commitment partnerships and other non-traditional opportunities.
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Tags: Asset Allocation, Florida, Florida State Board of Administration