The $8.8 billion School Employees Retirement System of Ohio intends to allocate up to $200 million to high return fixed-income strategies and distressed debt. The retirement system plans to hire several managers over the next year and will also conduct an asset/liability study, according to its investment plan for the fiscal year ending June 30, 2006. It will also investigate long/short strategies and conclude a study of portable alpha. Robert Cowman, director of investments, was out of the office at press time.
During the year ending June 30, 2005, the fund met with 25 managers of emerging or alternative fixed-income, including hedge funds, emerging market debt, high-yield, distressed debt, mezzanine, mortgage-backed securities, convertibles, private placement, portable alpha, total return and commodities. The staff intends to implement one or more alternative fixed-income strategies during fiscal year 2006 if market conditions permit.
The fund has been researching portable alpha for the past two years, for instance transporting the alpha of a small-cap equity portfolio to a large-cap portfolio using futures. It intends to make a decision this year. It also plans to determine the best structure and investment vehicle for its passive equity exposure, and could use portable alpha strategies here. The target passive exposure is 40-100% of the U.S. equity portfolio and 20-100% of the international equity portfolio.
"With the expansion and re-composition of SERS' board it would be appropriate to conduct a new study this fiscal year," according to the fund's Web site. Its last study was conducted in 2002 and 2003. The fund also intends to revise its investment policy. Staff will consider relaxing portfolio constraints such as cap neutrality and long-only to boost alpha in the equity portfolios. The fund will, in addition, consider adopting a governance policy. "This is a recent phenomenon within the investment community and may prove helpful in better understanding the roles and responsibilities of all those charged with managing SERS' fund," according to the investment plan.
The fund's target asset allocation is 46% domestic equity, 16% non-U.S. equity, 3% private equity, 23% bonds, 10% real estate, 2% cash equivalents.