FROM: Don Pierce, Chief Investment Officer
SUBJECT: 2019 NEPC Asset Allocation Report
RECOMMENDATION:
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Approve the proposed 2019 Asset Allocation, Ranges, and Benchmarks.
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BACKGROUND:
Each year, NEPC updates their expected return estimates for various asset classes. While SBCERA reviews the asset allocation each year, the asset allocation does not necessarily change each year. In addition to the asset allocation, NEPC has reviewed both the ranges and asset class benchmarks as part of this report.
At the March 12, 2019 Investment Committee the preliminary report detailed the SBCERA portfolio under the new asset class expectations, and indicated the current asset allocation expected return was sufficient to meet the Board approved 7.25% funding rate. Moreover, the Staff and NEPC did not anticipate requesting changes to the asset allocation for 2019 given the changes made in 2018 between real estate and emerging market debt. At the meeting, NEPC indicated it may make recommendations for the asset class benchmarks and ranges as part of the final 2019 report. NEPC concluded the existing ranges support the Board’s investment program goals.
NEPC does recommend a change to the Real Asset benchmark. The change to the Real Asset benchmark will remove Timber and replace with TIPs as a reference asset. SBCERA views the role of the Total Plan Benchmark to provide the Board a liquid portfolio that could achieve the Board’s investment program goals and compare that benchmark portfolio as a reasonable opportunity cost for the investment program.
COMMITTEE REVIEW:
This item was reviewed by the Investment Committee at its June 11, 2019 meeting and recommends Board approval.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Don Pierce
ATTACHMENTS:
Exhibit A: 2019 NEPC Asset Allocation Report
Exhibit B: 2019 NEPC Recommended Asset Allocation Targets