Indiana's public pension restructures investments

November 12, 2011

Indiana’s public pension system has changed its investment strategy with the aim of reducing risk in its portfolio.

The new asset mix, approved by the Indiana Public Retirement System’s board late last month, includes a lower concentration of public equities and a slightly higher percentage of real estate and commodities.

The $23.8 billion portfolio also includes a new strategy called risk parity, which includes investments such as treasuries, equities, commodities and government securities designed to protect investors from the negative effects of inflation. The idea behind that approach is reducing risk through a more diverse mix of holdings.

“By lowering our exposure to equities and increasing our exposure to more risk-balanced return sources, the fund has a better chance to deliver needed returns in varying economic conditions,” Jeff Hutson, a spokesman for the system, said in an e-mail.

The Indiana Public Retirement System includes pensions for state and local employees, judges, teachers, prosecutors and public safety. The Public Employees Retirement Fund, which includes state and local government workers and university employees, is the system’s biggest component. It saw its value plummet 40 percent from its recent peak of $16.7 billion in October 2007 to a low of $10 billion in February 2009. Improved performance and the continued influx of employer contributions has pushed the fund up more than 50 percent, to $15 billion, as of September.

About 35 percent of the new asset mix is concentrated in areas such as real estate, hedge funds, commodities and private equities. The rest is primarily publicly traded stocks, bonds and the risk parity mix.

Pension managers expect the fund to return 7.52 percent annually, or about 7 percent, when investor fees are taken into account.

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