PRIT Fund Asset Class Descriptions
The PRIM Board believes that the adopted asset allocation is the one most appropriate for long-term public pension fund investors in Massachusetts. Accordingly, from an asset allocation perspective, the PRIM Board believes that the best investment option continues to be the diversified PRIT Core portfolio, which reflects that asset allocation. To the extent that local systems may wish to pursue their own asset allocation, however, PRIM offers the option to invest in one or more specific separate account "segments" of the PRIT Fund. The strategic and tactical asset allocation of the PRIT Fund composition and its portfolios are subject to change without notice as determined by the PRIM Board and may not all be available through segmentation.
Domestic Equity Portfolio
Approximately 25% of the portfolio is invested in enhanced index strategies benchmarked to the S&P 500 Index, and approximately 75% is passively invested in a Russell 3000 index fund. There is no active management in the Domestic Equity Portfolio.
International Equity Portfolio
The portfolio is invested in a passive MSCI World Ex-US IMI Index Fund, and three active EAFE portfolios. The primary strategy for this portfolio is the EAFE mandate. The EAFE managers invest in the developed markets of major industrialized nations such as Japan, Germany, the United Kingdom, France, Italy, Switzerland, Hong Kong, Canada, and Australia.
Emerging Markets Portfolio
The portfolio is 50% passively managed by one investment manager and 50% actively managed by three investment managers. Included in the Emerging Markets portfolio are the equity securities of companies in developing countries in the Far East, South America, Central America, and Central/Southern/Eastern Europe. These countries typically have less efficient securities markets where there is opportunity for substantial returns.
Core Fixed Income Portfolio
The Core Fixed Income Portfolio is invested using the following strategies:
77% in core Barclay's Capital Aggregate active and passively managed portfolios; 8% in Treasury Inflation Protected Securities (TIPS); 15% in Global Active Inflation-Linked Bonds (ILBs).
The core strategy is designed to reduce the long-term volatility of the overall portfolio.
Value-Added Fixed Income Portfolio
The Value-Added Fixed Income Portfolio is invested using the following strategies:
24% in actively managed High Yield bonds; 20% in emerging market debt; 39% in distressed debt; 17% in bank loans.
Real Estate Portfolio
PRIM invests in real estate with the expectation of obtaining portfolio diversification, inflation hedging characteristics, and attractive returns. Real estate returns historically have a low correlation with stock and bond returns, therefore offering an element of diversification that reduces volatility.
The Real Estate Portfolio invests in Core and Non-Core real estate strategies. The Core portfolio holds equity investments in both directly-owned properties and REIT securities. Direct properties make up the majority of the portfolio and are typically well-leased, operating properties that provide regular cash flow from property-level rents.
Non-Core investments include tactical opportunities identified by staff and its consultants that fall outside the definition of Core. Examples of this would be real estate debt, international investments or opportunistic strategies focusing on a unique market opportunity or property type.
Private Equity Portfolio
Two components comprise PRIM's Private Equity Portfolio: venture capital and special equity partnerships. Unlike public markets, where the investor has the ability to "cash out" of positions at any time, these private market investments are illiquid. Therefore, an investment in this category is a long-term commitment. Typically, large public pension funds invest in the private equity markets through a limited partnership vehicle. Managers are chosen for their expertise in a particular field in private equity and assume the general partner role. Investors participate as limited partners, and therefore, limit potential liability to only the invested capital.
In 2002 PRIM began investing in timberland in order to enhance portfolio diversification, act as a hedge against inflation and provide stable income returns. Investment returns from timberland investments are derived from the net cash flow generated from the sale of trees (referred to as stumpage sales) combined with capital appreciation from the biological growth of the trees. Both of these return factors depend upon the direction of forest product commodity prices (paper goods and lumber products). The PRIM Board desires its timber and natural resource portfolio to be diversified by investment in different timber property types, in a variety of geographic locations and with different managers.
Portfolio Completion Strategies
PRIM invests in portfolio completion strategies, allocating to the following:
- Event Driven
- Global Macro
- Relative Value
For more information please see the PRIT Fund’s Comprehensive Annual Financial Report (CAFR)