Florida increases real estate allocation to 7%

The pension's board, which manages about $110bn in assets, has also significantly increased the target for private equity, as well as strategic investments, which includes debt funds and infrastructure.

The Florida State Board of Administration has increased its target allocation to real estate from its current allocation of 6.4 percent to 7 percent, and bumped its allocation to debt-related funds to 3 percent.

Florida SBA, which manages a total $135 billion of assets under management, previously had a target allocation to real estate of just 2 percent. The target range for the real estate asset class is now between 2 percent and 12 percent.

The board also increased its target allocation to private equity to 5 percent, from 3.5 percent.

In reviewing its asset allocations, Florida has put much more focus on what it calls “strategic investments”, which include debt-related funds like those managed by Oaktree Capital Management, as well as infrastructure, timber and hedge funds.

The pension increased its target allocation to “strategic” funds from 1.8 percent to 11 percent, and for the first time carved out an allocation of up to 2 percent for infrastructure investments.

“The purpose of that is to allow for greater flexibility, to give opportunities to your skilled professional staff and external investment advisors to add value and also to reduce risk by diversifying more away from traditional asset classes,” Mike Sebastian of Ennis Knupp & Associates, the pension’s investment advisor, told the trustees at a meeting Tuesday. 

The policy will also expand private equity, which currently stands at 3.5 percent, to 5 percent, and real estate, now 6.4 percent, to 7 percent.

These gains will come at the expense of more traditional asset classes like listed equity and fixed income. The new policy will merge the pension’s domestic and foreign listed equities, which currently constitute 57.4 percent of the portfolio, into one category called global equities that will be targeted at 52 percent of the portfolio. Fixed income will shrink from 26.1 percent to 24 percent and high-yield income investments of 2.1 percent will be eliminated altogether.

The trustees, Florida chief financial officer Alex Sink, Florida Governor Charlie Crist and Florida Attorney General Bill McCollum, welcomed the new investment policy, approving it by a unanimous vote.