US - The Fresno County Employees' Retirement Association (FCERA) has eliminated its global fixed income allocation and diverted those assets to emerging markets.
According to a draft of minutes from the January 6 board meeting to be discussed by trustees today, the board decided to axe its 1% target allocation to global fixed income, and increase its allocation to emerging markets to 3%.
Wurts and Associates president and chief executive Jeffrey MacLean, the scheme's general consultant, said there was more opportunity to reap returns form emerging markets than global fixed income.
The minutes said: "Mr. MacLean stated that risk free interest rates among developed markets, including the US, have converged to a tight band around 3.5%. Currency would account for differences in total expected returns. The more reasonable option is to undertake the currency risk within the context of an equity allocation, which would provide higher return expectations than fixed income and be less overwhelmed by currency movements."
The US$2.5bn pension plan was already overweight global fixed income, through its $71.6m mandate with Grantham Mayo Van Otterloo (GMO). MacLean said the global debt allocation totalled 2.9% because illiquidity in the markets made it costly to transition out.
GMO was terminated as a result of the change in allocation, though trustees said the manager had performed well.
FCERA can still access global debt through its domestic fixed income managers, who have the leeway to invest overseas if they spot an opportunity.
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