Callan consultants tell Lexington pension committee portfolio can be modestly de-risked while adding private credit; follow-up meeting set

Callan investment consultants told members of the Lexington City Pension Board subcommittee that the city’s current asset mix is projected to meet the plan’s 7% actuarial return target over a 10-year horizon but that the board can modestly increase defensive allocations without sacrificing expected return.

The presentation, led by John Perron, senior vice president in Callan’s capital markets group, laid out two main paths: (1) incrementally increase the allocation to core fixed income (the consultants suggested around a 5 percentage-point increase funded from public equities) to reduce portfolio volatility while still targeting 7% long-term returns and (2) consider introducing alternative assets — specifically private credit, private equity and infrastructure — with private credit shown as the most diversifying of the three in Callan’s “straw-man” mixes.

Callan presented baseline numbers to illustrate the tradeoffs. “The current allocation has a projected 10 year return of about 7.12%,” Perron said during his slides. He and other Callan staff noted that core fixed income forecasts have risen since the prior asset-liability study,…