State Investment Board makes significant asset allocation changes for state retirement fund investments (November 15, 2007) Olympia-The Washington State Investment Board (WSIB) today increased the private equity and real estate asset allocation targets for state retirement systems invested in the $66.3 billion Commingled Trust Fund (CTF). The private equity asset allocation target will increase from 17 percent to 25 percent and the Board raised the real estate target from 12 percent to 13 percent. The Board also allocated 5 percent to tangible assets, a new asset class for the WSIB, which includes investments such as infrastructure. "We are mindful of the challenges associated with investing in private equity, but in exchange for assuming the additional risks the state's pension funds are being rewarded with higher and stronger investment returns than could be obtained through more traditional investments," said WSIB Executive Director Joe Dear. "We currently have 20 percent invested in private equity and despite the current turmoil, given our long-term investment horizon the Board believes raising the target to 25 percent is a reasonable and prudent strategy." The WSIB's allocations to private equity, real estate and international assets are higher in comparison to other public pension funds and the annual rate of return for the CTF as of June 30, 2007 was an impressive 21.3 percent. According to the Wilshire Trust Universe Comparison Service (TUCS), that puts Washington in the top 5 percent of public pension plans with assets greater than $1 billion. The median performance for funds in that category was 17.7 percent. The Legislature assumes the WSIB will make an 8 percent annual investment return overall to help provide retirement security for over 440,000 public employees, teachers, school employees, law enforcement officers, firefighters, public safety workers, and judges throughout Washington state. "Looking forward, over the next 20 years, even 8 percent would be a difficult target to meet if we had to depend on bonds, government securities and publicly traded securities," Dear said. "We have long, established relationships with many of the most successful private equity firms in the world and their demonstrated expertise in identifying and accessing high-quality opportunities makes a significant difference in our ability meet or exceed the assumed rate of return for Washington's retirement funds." The Board has invested in real estate for more than twenty-five years and believes the increased allocation will continue to deliver significant diversification benefits and long-term, high-quality, stable income streams for the CTF. The move to tangible assets provides valuable diversification and the potential for attractive risk-adjusted returns. Today's strategic asset allocation decision comes exactly one year after the process began with a series of educational sessions, in-depth discussions and hundreds of hours of analyses. In addition to recommendations from staff, the Board also worked closely with Pension Consulting Alliance, EFI Actuaries, Capital Dynamics, and the Office of the State Actuary. Find out detailed information on why the Washington State Investment Board changed its strategic asset allocation.