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Board reviews public fixed‑income and liquidity updates; staff says liquidity improved after 2024 rebalancing
Summary
Staff told the board the public fixed‑income portfolio returned 4.7% in 2024 (public credit 6.7%, treasuries 2.3%), described a new public‑credit construction framework targeting ~75 bps excess return, and said rebalancing raised over $2.3 billion from public equities into fixed income and cash, improving liquidity metrics.
Staff presented the public fixed income and cash annual update and a separate liquidity management briefing. Alo Martins explained the role of treasuries, public credit and cash as liquidity and income sources and noted the board’s new strategic targets: 8% to treasuries, 12% to public credit and 1% added to cash as part of strategic allocation changes approved last year. He reported the fixed income portfolio returned 4.7% in 2024, outperforming its policy benchmark by about 70 basis points, with the public credit sleeve returning 6.7% and treasuries roughly in line with index performance at 2.3%.
Staff described a public‑credit construction framework calibrated to a target tracking error of ~150 basis points (allowed 100–200 bps), an information ratio assumption of 0.5 and an implied target excess return near 75 basis points. Allowable on‑benchmark ranges for investment‑grade and high‑yield corporate credit were set at 30–60%; off‑benchmark buckets (bank loans/CLOs, EM debt, structured credit, other) were limited to 0–20% each. Staff said managers may access structured credit/CLO exposures within multi‑sector mandates or via dedicated managers subject to these guardrails.
On liquidity, Anna and staff described a three‑pronged framework: forecast net pension obligations, model private capital call/distribution cash flows (with Cambridge Associates) and align pacing/asset allocation. They reported raising more than $2.3 billion from public equities and absolute return in 2024 and deploying approximately $1.0 billion into fixed income and $600 million into cash; staff also described a $600 million contingency credit facility with BNY Mellon. Using Wilshire and Cambridge models, staff reported Tier 1–3 liquid assets of roughly 43% of plan assets and liquidity coverage ratios that remain above 1 across base and stressed scenarios (base LCR ~2.09; most‑severe tested LCR ~1.22), concluding the plan can meet three years of pension obligations in modeled stress cases.
Commissioners asked whether reduced pacing caused staff to decline investment opportunities; staff said pacing has been deliberately slower but that high‑conviction opportunities are still considered. No formal action was taken; staff will continue to implement the new construction framework and report pacing and liquidity metrics back to the board.
