The current long-term policy asset mix was adopted in 2014, following the most recent asset-liability modeling study. ATRF typically conducts this study every four to five years with the goal of determining the most appropriate asset mix for the plan. The policy asset mix includes traditional public market assets, such as equities and bonds, as well as private market assets, such as real estate and infrastructure.
ATRF began investing in real estate and infrastructure in 2010, and we have been gradually and prudently increasing our allocations to each asset class toward reaching our long-term policy weights. During this time, the policy asset mix is adjusted each year to reflect the actual growth in these asset classes.
Return Enhancing Assets
Return enhancing assets are generally expected to provide the highest return over the long term, but reflect a higher risk profile than other assets in the plan. Return enhancing assets are the largest investment category in the fund, and include our public and private equity portfolios.
Our public market equity portfolios are highly diversified by investment style, company size, and geography in order to mitigate risk. While some of these assets are managed by ATRF’s internal investment team, the majority are managed by external investment partners who have specific expertise in certain markets or investment types. Our private equity assets consist of a combination of limited partnerships and direct investments.
Fixed Income Assets
Fixed income assets are typically 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. ATRF’s fixed income assets are diversified across short, medium and long-term maturity dates and include both government and corporate issuers.
Most of our fixed income assets are managed internally by ATRF’s investment team, while a minority of these assets has been outsourced to external managers who are focused on particular segments of the markets.
Inflation Sensitive Assets
Inflation sensitive assets are included in the fund to provide returns that are at least partially correlated to inflation over the very long term. This characteristic provides a degree of long-term funding protection as pension benefits under the plans are 70% indexed to inflation. Both real estate and infrastructure are included in this asset category.
Our real estate and infrastructure portfolios are constructed and managed using a combination of internal and external investment managers. Our internal teams have established an extensive global network of partners and fund managers with whom we work closely to identify and manage investments.
Absolute Return Assets
Our absolute return assets play an important role in diversifying risk by generating investment returns that are relatively stable and largely uncorrelated with more traditional assets (primarily return enhancing assets). These assets are highly diversified, reflect a wide range of risk-return profiles, and include managed futures, hedge funds and other multi-asset strategies. All of these strategies are managed by external investment partners.