The asset mix for the Plans is based on a comprehensive asset-liability modeling study that ATRF undertakes every four years. The most recent study was completed in 2013 and was specifically focused on identifying and reducing the risk of significant future contribution rate increases within the context of the funding policy of the plans.
Return Enhancing Assets
Return enhancing assets represent the largest investment category in the fund, and include a number of public and private equity portfolios. These portfolios are well diversified by investment style, company size, geography and vintage year (for private equity funds) in order to prudently manage risk. The primary purpose of return enhancing assets is to increase the overall investment return of the fund. These assets will typically be among the highest risk assets in the fund and are expected to provide the highest returns over the very long term.
Fixed Income Assets
ATRF's fixed income assets are structured to reflect a diversified combination of short, medium and long-term bonds, as well as bonds issued by both governments and corporations. These assets will typically be among the lowest risk assets in the fund and are expected to provide lower, but more stable returns than other asset categories over the long term. The primary purpose of holding fixed income assets in the portfolio is to provide safety and liquidity, which reduce the overall volatility of returns.
Inflation Sensitive Assets
Investments in the inflation sensitive category generally provide returns that are at least partially correlated to inflation over the very long term. This is a significant benefit to ATRF in the future as benefits under the pension plans are 70% indexed to inflation. ATRF includes both real estate and infrastructure in this asset category.
Absolute Return Assets
Absolute return assets are highly diversified, reflect a wide range of risk-return profiles, and include managed futures, hedge funds and other multi-asset strategies. The primary purpose of ATRF's absolute return assets is to diversify risk by generating investment returns that are relatively stable and largely uncorrelated with more traditional assets; primarily return-enhancing assets.