FROM: Don Pierce, Chief Investment Officer
SUBJECT: Asset Allocation: 2023 Capital Markets Outlook
RECOMMENDATION:
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Asset Allocation: NEPC’s 2023 Capital Markets Outlook.
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BACKGROUND:
Each year, NEPC updates their expected return estimates for various asset classes. We take the opportunity to review their findings with the SBCERA Investment Committee and Board. This preliminary report details the current SBCERA policy portfolio under the new asset class expectations and provides comparative portfolios for benchmarking purposes. While SBCERA reviews the asset allocation each year, the asset allocation does not necessarily change each year.
The 2023 preliminary NEPC report indicates the current asset allocation meets the Board approved 7.25% funding rate over the next 10-year period and the 30-year horizon. As a reminder, last year the Board made changes to the Asset Allocation by shifting allocations from emerging market debt, and international equity to domestic equity.
NEPC and staff will discuss this preliminary report and the implications for SBCERA; however, forward return expectations are much higher now than in previous years which may add asset classes for consideration into the portfolio that before did not meet the portfolio’s cost of capital. The Investment Committee and the Board will review this material several more times before a final asset allocation is considered for adoption by July 2022.
COMMITTEE REVIEW:
This item was reviewed by the Investment Committee at its March 9, 2023 Meeting.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Don Pierce
ATTACHMENTS:
Exhibit A: 2023 Asset Class Assumptions