The North Carolina Department of State Treasurer is seeking to relax limits to how the state pension fund can be invested across private equity and other alternative investments, a move that would give it wider berth to shape an $84 billion portfolio amid interest-rate uncertainty.
The state treasurer’s department got a vote of confidence on Tuesday from a key advisory board to ease statutory restrictions on the pension’s investments in private equity, real estate, opportunistic credit, inflation-sensitive assets and equity hedge funds, spokesman Brad Young said.
North Carolina will seek to raise the maximum allocation to each of the asset classes, though it expects the 35% allocation limit for these investments in aggregate to stay the same. The pension fund wants added flexibility to bolster returns and control risks “in light of expected low investment returns for the next decade,” according to an investment report.
Pension funds are grappling with expectations of slowing growth, soft energy prices and mixed signals over the movement of interest rates. As it reviews its portfolio mix, North Carolina is looking for new levers to pull.
North Carolina has called for an increase in the maximum allowable allocation limit to 15% for private equity, real estate, opportunistic credit, inflation-sensitive investments and equity hedge funds.
The recommended changes can only take effect after it’s passed by the state legislature and signed into law, Mr. Young said. North Carolina expects the proposal to be introduced as legislation in the coming weeks.
For now, the North Carolina Retirement Systems can invest up to 10% in real estate. It sees potential benefit from allocating additional funds into real estate strategies.
The pension fund can have up to 8.75% of invested assets in private equity, according to pension data. Private equity made up 5.1% of pension assets as of the end of February, short of a 6% target.
The pension has a maximum allocation limit of 7.5% for inflation-sensitive assets, which includes timberland and commodities. Opportunistic fixed income made up 5.9% of the pension fund, short of a 7% policy target and a 7.5% maximum allowable limit. The pension fund has its largest exposure to hedge funds through the portfolio.
North Carolina will look at multistrategy credit, global and European distressed strategies, as well as structured credit as it builds its opportunistic fixed income footprint, according to pension slides.
It sees direct lending, distressed plays and long-only structured credit as potential attractive opportunities. The pension fund is also considering ways to take advantage of dislocations in the energy market.
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