WRS’ Johnson Embraces Passive Approaches

January 02, 2013

The Origins And Evolution Of Delta-One

The Wyoming Retirement System has been in place since 1953, the result of the merger of two other public pension plans. It covers most public employees in the state who don't work for the federal government. Well-funded, with roughly $6.6 billion in assets under management, WRS' investments are overseen by Chief Investment Officer John Johnson, who, in his three years in that role, has implemented a portfolio with sizable allocations to passive investments in both the equities and fixed-income spaces. The Journal of Indexes recently caught up with Johnson to discuss the fund's passive allocations and how he's navigating the current investment environment, among other topics.

JOI: Can you talk about how WRS is structured?
Johnson: We have 85,000 members, including retired and current active members that make up the system. There are nine different plans that include a public employee plan, as well as separate public safety and judicial plans. It's a system of nine different plans that, from an investment perspective, are managed as just one total plan. The total assets under management are right around $6.6 billion and, at this time point, the largest plan—the public employee plan—was 81.9 percent funded.

JOI: How does your team approach investing?
Johnson: We have a quantitative-fundamental process, and the way we include investments in the total portfolio is driven largely by our quantitative process, with the intent to develop a maximized Sharpe ratio portfolio. We try to maximize the Sharpe ratio of all our investments, and more importantly, combine investments that have different correlations that drive a total return. We're looking to develop a total-return stream driven by individual investments that are created by using a correlation matrix and Sharpe ratio matrix of the individual investment return stream. It's how we approach the overall investment portfolio.

JOI: What's your mix of assets like?
Johnson: The core is our strategic allocations, and then we have a range around that strategic allocation set point in which we can tactically allocate over the years. The five asset classes that we have are cash, fixed income, equity, global tactical asset allocation (GTAA) and real assets. Those are the five asset classes for which the board sets allocation targets. The board right now has assigned an allocation target of 50 percent to equity, 30 percent to fixed income and 10 percent each to real return and GTAA, with a target of zero cash.

The actual allocations that we have are 53.5 percent equity, roughly 10 percent for GTAA, about 8.5 percent real assets and about 2.5 percent cash; the balance is fixed income at around 26 percent (Figure 1).

Figure 1



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