Police & Fire Retirement Fund board narrows policy, adopts modest derisking with U.S. bias after Callan presentation

The Lexington Fayette Urban County Government Police and Fire Retirement Fund Board on Aug. 13 voted to change its target asset allocation, adopting Callan Associates— recommended Mix 2 with a modest U.S. equity bias after a multi-hour presentation and discussion of asset-liability modelling and manager structure.

The board heard Callan—s 2025 asset-liability study and an international-equity structure review delivered by Callan—s John Perron and Jim O—Connor. Callan modeled the plan with the fund—s current actuarial inputs and projected that the fund, currently about 73% funded, would reach roughly 90% funded over the next decade under the existing policy. Callan recommended a modest increase in core fixed income — on the order of 4 to 5 percentage points — to improve downside protection without materially reducing expected long-term returns.

Why it matters

The fund has more than $1 billion in assets and supports retired and active public-safety employees. Asset-allocation decisions are the largest determinant of the fund—s long-term investment performance and risk profile. Callan—s models used probabilistic simulations (2,000 draws) and showed that shifting modestly toward fixed income could lower the portfolio—s downside outcomes while keeping expected returns near the actuarial assumption.

What Callan told trustees

"If the board is interested in making a change, we would recommend incrementally increasing the fixed income exposure," Callan—s John Perron told trustees as he presented the mixes under consideration. Perron explained that rising yields have materially improved expected…