Arizona commits to opportunistic debt

A $200m opportunistic debt commitment boosts the $30.4bn retirement system’s allocation for the strategy to 3.6%. 

The Arizona State Retirement System committed $200 million to opportunistic debt strategies during the second quarter, according to documents made available to Private Debt Investor on Thursday.

“[The] commitment to [an] opportunistic debt strategy is consistent with house views, which currently favour opportunistic debt and private debt strategies over core bonds and high yield,” according to an investment update report.

The commitment brings Arizona’s allocation to opportunistic debt to approximately 3.6 percent. Although the $30.4 billion retirement system doesn’t have a target allocation for opportunistic debt, its policy allows for up to 10 percent for the strategy. A spokesperson did not respond to a request for additional information on the commitment.

AZSRS’ debt strategy has generated a 12.7 percent internal rate of return since its July 2008 inception, according to a 30 August NEPC report.

“[Investment Management Division] sees the most attractive opportunities in fixed income in select credit markets — particularly private debt and opportunistic debt — where compelling yield and total return opportunities exist,” according to the report. “Private debt offers very attractive yields but the pace of our funding is subject to the ability of managers to source investments and draw down capital on our commitments.”

Arizona launched its private debt strategy in July 2012. That portfolio, which is currently valued at $664 million, had generated a 14.4 percent return since inception as of 30 June, according to the report.

Several pension systems have adopted private debt or credit strategies in recent years. Last year, the Los Angeles City Employees’ Retirement System adopted a 5 percent target allocation for credit opportunities. The San Diego City Employees’ Retirement System and Orange County Employees’ Retirement System have also increased their allocation to credit strategies recently.