University of Missouri Adjusts Endowment, Pension Asset Allocation

Adjustments made to lower risk, and in anticipation of lower returns.

The University of Missouri System revised the asset allocation for its $3.2 billion defined benefit pension plan, and its $1.37 billion endowment at its most recent board meeting held on Sept. 28 and 29. The asset allocation overhaul targeted a reduction in risk with the expectation that investment returns will be lower going forward, according to internal documents.

“In addition to noticeable improvements in portfolio efficiency, the changes also bring more balance to each of the portfolios, primarily in terms of increased protection in rising inflation and falling growth economic environments,” noted board materials. The board expects the new target allocations to offer a 0.4% increase in mean expected returns, given the reduction in portfolio risk coupled with current capital market return expectations.

The changes included lower allocations to global equities, global fixed income, hedge funds emerging markets and opportunistic debt. Conversely, the board plans to increase commitments to commodities, sovereign and inflation-linked bonds. Specific asset allocations changes are as follows:

Frothy valuation within the domestic public equities will drive the fund’s slight overweight in non-U.S. public equities. Allocations to opportunistic debt and emerging markets debt were eliminated due to the credit risk associated with such investments. “Based on our view that we are in the late stages of economic expansion,” noted the board, “we believe it would be prudent to significantly reduce our exposure to credit risk.”

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