Maine pension plan considers change in asset allocation

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The Maine Public Employees Retirement System seeks to reduce risky assets and increase those that generate income, at a gradual pace by 2028.

In a proposal from MainePERS CIO James Bennett, the plan would increase its allocation to US government securities from 7.5% to 10%, and make the same change for what the report calls alternative credit – which includes junk bonds, bank loans and assets. attached titles.

At the same time, Bennett calls for reducing the allocation to private equity to 12.5% ​​from 15%, and reducing investment grade corporate bonds to 5% from 7.5%.

Obviously, US Treasury debt and its ilk are considered risk-free. Bennett doesn’t mention his specific rationale for junk credits and other alternative credits, but their defaults have been low for some time and they tend, as a class, to have relatively high yields.

Private equity is the most popular alternative investment among institutions these days, although the risk always exists that some of its transactions will go wrong, as has happened historically. Meanwhile, the spread between investment-grade corporate bonds and Treasuries is narrow: 1.26 percentage points last week. (Again, no analysis of these proposed changes was included in the report.)

For the Treasury component, the proposal calls for a 50-50 split between standard Treasury bonds and Treasury inflation-protected securities. Currently, TIPS has 90% of the Treasury allocation.

Bennett writes in his report that “these proposed changes will result in a decrease in expected portfolio risk, with little or no impact on expected returns, based on current capital market expectations.” The report went to system administrators.

Two consulting firms, Cambridge Associates and Cheiron, helped formulate the plan. Bennett’s report says Cheiron performed simulation analysis “showing the range of results for funded status, contribution rates, and liquidity associated with different portfolio risks.”

MainePERS is fairly well funded. The major program of the system, for state employees and teachers, is funded at 82.1%, as of June 30, that of local authorities at 91.1%.

Related stories:

Maine becomes first state to pass fossil fuel divestment bill

Maine selects Deputy James Bennett as CIO

MainePERS CIO deliberates on withdrawal of PE commitments

Tags: funded status, investment grade corporate bonds, James Bennett, Junk Bonds, Maine PERS, private equity, TIPS, Treasury Bonds

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