Rhode Island refines, consolidates asset classes

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The $ 9.6 billion Rhode Island Employee Retirement SystemProvidence is considering consolidating private equity and opportunistic private credit investments, according to a note from a March 24 meeting of the Rhode Island State Investment Commission.

The memo on staff recommendations for strategic asset allocation indicated that the change would allow capital to be deployed “periodically as market conditions or managers’ availability, rather than through a consistent annual pace plan.” . The current targets for private equity and opportunistic private credit are 11.25% and 1.5%, falling under the private growth category. The new combined target is 12.5%.

The merger of the two allocations would allow strategies to be pursued “in a more opportunistic manner and to avoid potentially weak vintages during periods of economic expansion,” the memo said.

A spokesperson confirmed that the changes were approved at the March meeting.

In the income category, investment staff recommended eliminating a 1% allocation to REITs and a 1% allocation to master limited partnerships, adding a 2% target for secured loan obligations.

“Eliminating these small allocations to MLPs and REITs would free up capital to invest in more strategically prudent yielding assets with expected volatility and lower equity beta,” the staff note said. The new CLO exposure would primarily target mezzanine and equity tranches and diversify the asset class, “and improve its expected return on both an absolute and risk-adjusted basis.”

For the inflation protection compartment, staff called for eliminating a 2% allocation to TIPS and increasing the allocations for basic real estate to 4% from 3.6% and private real estate assets to 4% 2.4%.

The note notes that a strategic asset allocation study implemented after an asset / liability study in 2016 “achieved its portfolio objectives while outperforming its benchmarks”.

“With low returns, moderate return expectations, and the uncertainty surrounding the future economic impact of the pandemic, staff and NEPC I think it is prudent for the SIC to consider additional SAA adjustments, at the margin, which will improve the expected return on both an absolute and risk-adjusted basis and improve the portfolio’s ability to meet its objectives ”, indicates the note.


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