Investment consultant reports near 9.4% one‑year net gain; urges focus on strategic allocation

At the July 10, 2025 meeting of the Public Employees Retirement System, Investment Consultant Jason Puigols reported that the fund’s trailing one‑year return was roughly 9.8% gross and about 9.4% net and urged trustees to prioritize the plan’s strategic asset allocation.

Puigols said the most important duty for trustees “from an investment standpoint is establish the strategic asset allocation,” and described the board’s role as taking a long‑term, rules‑based approach to rebalancing rather than reacting to short‑term market moves. He said the plan’s structure makes it uncommon to move large amounts from equities to fixed income for cash needs; instead, “we’re taking from what’s done well and using that to raise cash to pay benefits.”

Puigols reviewed drivers of recent returns: U.S. large‑cap equities fell sharply earlier in the year then recovered to new highs; non‑U.S. developed markets and emerging markets delivered strong gains through June (emerging markets +15.3% year‑to‑date through June; developed non‑U.S. roughly +19.4%, as shown in the consultant’s slides). He also flagged that the plan remains slightly overweight equities (about 61.5%) and modestly underweight real assets versus a 15% target, while fixed income plus cash is near the 25% policy target when cash (~<2%) and bonds are combined.

On private markets, Puigols noted the board increased its private equity target from 10% to 15% a few years ago and that the plan has a pacing plan for commitments because private funds call capital over time. He said there are “quite a bit of unfunded commitments” in opportunistic real estate and private equity that will be called as managers deploy capital.

Puigols discussed active manager performance and attribution. He said the small‑cap composite lagged its benchmark over longer periods, though recent months showed stronger returns (the small‑cap composite was up nearly 6.5% for the most recent month, with Silvercrest up about 8.5% in that month). He also presented a deeper drill‑down of the non‑U.S. equity composite — made up of Lazard, Harding Loevner, Wasatch and Allspring — and showed that over multi‑year windows the managers have generally outperformed peers, though the portfolio has lagged the benchmark in the most recent period because of swings in growth versus value leadership since 2022.

Puigols summarized valuation views used in the board’s capital market assumptions: U.S. large cap equity valuations have been elevated relative to their 15‑year history, while non‑U.S. equities look more attractive on a valuation basis. He also noted the plan’s assumed rate of return used in actuarial work has been reduced to 7%.

The board received the report by motion; the motion passed unanimously. No formal reallocations or new commitments were approved at the meeting.

Investment Consultant Jason Puigols: “There’s going to be periods of time where they trail. Right now, we’re in 1 of these periods,” adding that the board has historically shown patience with managers. The board did not take immediate additional action beyond receiving the report.