The City of Orlando Police Pension Fund has increased its private debt allocation to 5 percent from 3 percent, according to board meeting documents, just the latest public retirement plan to boost its exposure to the asset class.
The pension plan approved a new allocation mix proposed by its investment consultant NEPC during its meeting last month, minutes showed. The pension plan’s private debt allocation was underweight, representing 2 percent of its total portfolio, as of 31 March. The police fund’s total portfolio market value was $558.19 million as of that date.
These new allocation targets make room for private debt and other alternatives by reducing its fixed-income bucket – which includes its bond and bank loan investments – to 26 percent from 32 percent, according to a document from NEPC. Along with private debt, the board also increased its large-cap equities target to 20 percent from 17 percent.
“The increase to private debt was done to provide further diversification and move towards better performing asset classes,” Katrina Laudeman, treasurer of the City of Orlando, wrote in an email. “Since the plan is highly liquid, NEPC did not see a problem with allocating more funds to alternative investments.”
With this new shift towards private debt and large-cap equities, the Florida pension plan expects a return of 6.1 percent over the next five to seven years and a return of 7.2 percent over thirty years. The chief financial officer at the Police Pension Fund declined to comment.
The Orlando Police Pension Fund is only one of several public pension plans that have started a new private credit bucket in their portfolio or have ramped up their existing allocation targets to this asset class in recent weeks.
The Pennsylvania Public School Employees’ Retirement System increased its allotment to credit to 11 percent from 9 percent last month, citing opportunities in private debt as driving the decision. The University of Missouri System added a new private debt allocation targeting 3 percent of its portfolio, also in September.
In Southern California, the Orange County Employees Retirement System carved out a specific bucket for private debt from its credit allocation recently, while the Los Angeles City Employees Retirement System is set to consider adding private credit and collateralised loan obligation investments to its fixed-income portfolio.