Russell Investments recommends diversifying New Canaan retirement portfolios; committee meets without quorum

Russell Investments presented an asset-allocation review to the Town of New Canaan's Return Plan Advisory Committee on Feb. 25, recommending a strategic shift from a 65/35 equity-to-fixed-income mix toward a 60/40 mix and adding exposure to emerging markets and listed real assets.

The recommendation, delivered by Rich Hall of Russell Investments, aimed to increase the portfolio's expected 10-year mean return from about 6.7% under the current allocation to roughly 7.3% under the proposed mix while slightly lowering projected volatility. "We maintain a relatively defensive posture with your portfolios, recognizing markets have been up 20 plus percent over the past two years. We're willing to be a little bit more defensive and conservative as we move forward from here," Hall said.

Why it matters: the town's funded retirement plan showed a market value of about $173 million as of Dec. 31 in the presentation, and Russell reported the portfolio had recovered to just under $178 million as of the market close the day before the meeting. Russell said the plan experienced roughly $2.5 million in outflows primarily for benefit payments and about $3.25 million in market declines during the fourth quarter; those losses have partially reversed in early 2025.

The consultant's recommendation keeps passive exposure to U.S. large-cap and developed international equities while increasing active management in areas where managers can add value, such as U.S. small cap, emerging markets, public real estate and public infrastructure. Hall said the recommended change would move the plan's overall asset mix to 60% equities and 40% fixed income and add modest allocations (Russell cited roughly 4% each) to listed real assets and infrastructure.

Justin Owens, identified as Russell's asset-allocation lead, answered members' questions about short-term volatility and the contribution impact. "The assets are smoothed over a five-year time horizon," Owens said, adding that the actuary spreads any over- or underfunded amount over about 10 years, which mitigates year-to-year contribution swings.

Committee members pressed on specific elements of the proposal. Questions and discussion points included: - Whether to increase fixed income given potential interest-rate moves and sovereign risk. - The rationale and sizing for adding a 4% allocation to emerging markets, given that China dominates that index and has weighed on returns in recent years. - Concerns about overlapping exposures if the plan uses both dedicated non-U.S. allocations and a global active manager that can invest in the U.S.

Russell addressed implementation mechanics: the consultant noted the current portfolios largely mirror the allocation inherited from the prior adviser and that holdings were within policy tolerances. Russell also reported it had reallocated Western Asset's portion of a core bond sleeve among four managers already in the lineup and might add a fifth sub-adviser.

No formal action: committee members determined they did not have a quorum and therefore did not transact business or vote on the recommendation. Diane Wilson and other members discussed next steps but did not adopt any policy changes. An agenda-item note on the presentation said an Investment Policy Statement would be located or provided if not already on file.

Follow-ups and next steps identified during the discussion included Russell running alternate portfolio iterations at committee direction, confirming whether an Investment Policy Statement exists on file, and scheduling a subsequent meeting with fuller membership and, if requested, a deeper presentation on the global equity option.

The committee meeting was a discussion session; members agreed to reconvene with a full quorum before any formal changes to the plan's asset allocation or sub-adviser lineup are approved.