Arizona, Texas pension funds to boost private debt buckets

The two pensions each increased their investment allocations for the strategy by 1%.

The Employees Retirement System of Texas and the Arizona Public Safety Personnel Retirement System have each upped their exposure to private credit after adjusting their asset allocations, documents from the two pension funds showed.

Austin, Texas-based ERS last week added an opportunistic credit bucket to its portfolio, which over the next two years will be set at 2 percent, comprising 1 percent each of private credit and real estate debt. In the third and fourth years, that bucket will be 3 percent, with the two sub-asset classes each having a 1.5 percent allocation.

Other alternative asset class allocations in ERS’s portfolio were also hiked, with real estate increasing from 10 percent to 11 percent over two years. An additional percentage point will be added in years three and four, taking the allocation to 12 percent of the portfolio. Infrastructure increased from 4 percent over the first two years to 6 percent, rising to a 7 percent target in the third and fourth years.

At its June meeting, Phoenix, Arizona-based PSPRS also approved a 1 percent increase to its private credit allocation, lifting it from 15 percent to 16 percent.

This increase came with a subsequent boost to its allocation targets for other asset classes, including an increase in its private equity allocation from 11 percent to 12 percent and its real assets bucket from 8 percent to 9 percent. All new allocation targets went into effect 1 July.

PSPRS’s private credit bucket at the pension plan was slightly under this new target allocation, comprising 12.3 percent, or $1.45 billion, of the fund’s total $9.3 billion portfolio as of 31 May, an agenda for its August meeting showed.

The pension’s private credit allocation showed a gross return of 2.06 percent the three months ending 31 May, compared to 8.80 percent, 6.60 percent and 8.78 percent returns over the one-year, three-year and five-year periods ending that date, respectively. r pension funds have added or increased private debt allocations, including another Arizona pension fund. — Justin Slaughter contributed to this report.