MFA Blog

Michigan Pension Fund Consolidating Asset Classes, Adds Hedge Funds

Posted on October 14, 2013

The Michigan Municipal Employees’ Retirement System is set to move to a new asset allocation at the beginning of 2014.  The move also includes a new category of investments that include hedge funds and other strategies to produce non-correlated returns.

The move comes as the pension fund consolidates its current seven asset classes down to four.  According to a recent article from Pensions & Investments, the new portfolio categories include a new diversifying strategies category, set to invest 10% of the fund’s assets.  The strategies included within this category are opportunistic strategies including hedge funds, credit, and other approaches to produce non-correlated returns.

“In doing the asset allocation review, despite our best efforts, we found that we still have too much equity exposure — 84%. The diversifying portfolio is designed to reduce that exposure,” said Jeb Burns, Chief Investment Officer at the pension.  “We will throw out a very wide net” in pursuit of “offbeat strategies” for the populate the diversifying strategies category, he said.

The second category combines domestic and  “international equity, private equity, and REIT investments into a global equity category with an allocation of 57.5%.”  Currently, the pension’s asset allocation for these classes is 53.5%.

The third category, global fixed income, combines domestic and international fixed income and high-yield investments.  The target allocation for this category was dropped from 35% to 20%.  Finally, real estate, timber, infrastructure, and enhanced commodities strategies were combined to form the real assets category.  This category has a 12.5% allocation.

Read more about the Michigan Municipal Employees’ Retirement System allocation online from Pensions & Investments.