CASH and RISK PARITY
The Cash Portfolio plays a very important role within the Fund. It provides not only stability for the portfolio but also liquidity and risk balance through diversification benefits relative to other riskier asset classes. The Cash Portfolio is primarily managed internally and the Fund’s exposure to cash is determined by APFC’s liquidity needs, time horizon, and risk tolerance given the market environment.
The Risk Parity portfolio is managed externally by three managers and is intended to deliver long term returns of CPI+5% or better while investing in various liquid asset classes that contribute equal amounts of risk.
KEY PORTFOLIO FIGURES
$1.8 B Cash
as of June 30, 2022
2% Cash/ 1% RP
FY23 Target Asset Allocation
$220 M Risk Parity
AS OF JUNE 30, 2022
MANDATE
Cash investments play an important role within a well-diversified investment portfolio and serve several purposes including protection against potential future increases in inflation, stability for the portfolio, liquidity, and diversification benefits relative to other assets.
Cash, the most liquid security, generally represents money market investments or fixed income securities with weighed average maturities of no greater than 24 months adding stability and diversification relative to other asset classes.
The amount of cash held is determined by APFC’s investment goal, time horizon, risk tolerance, and liquidity needs. Cash is benchmarked to the 3-Month T-Bills.
The Risk Parity program is intended to deliver long-term returns of CPI+5% or better by generating returns that are less correlated to global public markets through balanced allocation of risk rather than allocation of capital. These strategies are designed to control and balance risk. The goal of risk parity is to build diversified portfolios in which various asset classes contribute equal amounts of risk. By doing so, Risk Parity portfolios are not as dominated by stock market volatility as traditional portfolios are.
The Risk Parity portfolio is a multi-manager portfolio utilizing investment managers that provide risk-balanced exposure to multiple sources of excess expected return.
PERFORMANCE
The objective of the Risk Parity portfolio is to deliver long-term returns that meet or exceed the performance of a 60% stock/40% bond portfolio through managers which seek to generate returns that are less correlated to global public markets utilizing allocation of risk rather than allocation of capital. Performance of this portfolio will be evaluated quarterly against the Hedge Fund Research HFR 12% Vol Institutional Index, but success in achieving the long-term objective will be measured, net of all costs and fees, on a one-year, three-year, five-year , and ten-year annualized basis.
The objective of the Total Fund Cash portfolio is to:
a. Be a source of funds available to meet the Fund's operation needs, including capital calls and appropriations from the Earnings Reserve Account to the State's general fund; and
b. Allocate a small portion of the Fund to an asset class that is nearly risk-free and experiences extremely low volatility.
Performance of this portfolio will be evaluated quarterly and will be measured against the risk and after-fee return of the 90 Day Treasury Bills Index, but success in achieving the long-term objective will be measured, net of all costs and fees, on a one-year, three-year, five-years, and ten-year annualized basis.
Performance reports for the portfolio can be found in the monthly performance reports and in the board meeting packets.