Greystone warns of valuation risk as Portsmouth retirement fund pulls back equity exposure

Greystone and its investment team told the Portsmouth Retirement Board on Oct. 15 that recent market gains have been substantial but carry risks if corporate earnings or Federal Reserve easing do not materialize as the market expects. Jim (Greystone) said the firm’s baseline forecast is that “real GDP should come in about 3 to 3 and a half percent” for the third and fourth quarters, and he told the board that year‑end 10‑year Treasury expectations remain near 3.8 percent.

Brian (Greystone), who reviewed the pension portfolio, said the plan’s long‑term target allocation remains 70 percent equities, 22 percent bonds and 8 percent alternatives, but that the fund was running a bit north of target (about 73 percent equities) at the end of September. “In October, we pulled back about 2 percentage points from our equity overweight,” Brian said, describing a targeted move of those dollars into fixed income and a reduction of some active equity exposures. He said the passive share of the equity sleeve rose from about 65 percent to roughly 72 percent, leaving active managers at about 28 percent of equity exposure.

Greystone counselled caution because recent returns have been concentrated: non‑U.S. equities and certain technology and AI‑related names have outperformed, and speculative and unprofitable companies drove much of the rally. Jim warned that the market’s rally has been powered in part by multiple expansion: “most of what we’ve experienced is a market that’s moved higher because of multiple expansion,” he said, adding that the two principal risks are that earnings expectations are ahead of fundamentals or that the Fed does not cut as the market currently prices.

The manager said the defensive tilt from active managers contributed to relative underperformance during the risk‑on rally, because many of the highest‑performing, speculative holdings are not held by institutional, quality managers. Brian said the October adjustment was “done in a very targeted way” and involved exiting one active manager and trimming others to increase fixed‑income exposure while keeping strategic active managers in place for down‑market scenarios.

Greystone said the portfolio has benefited from a multi‑year equity run but emphasized that future strategic decisions — including whether to modestly increase passive exposure toward an upper bound near 75 percent — would be discussed with the board in a forthcoming strategic asset allocation review.

The presentation closed with Greystone and board members agreeing to return with more detail on manager positioning and on any recommended changes to the asset‑allocation targets.

Next steps: Greystone will provide the board with updated market‑value reports and follow up on allocation scenarios and alternatives redeployment plans.