Florida to boost alternatives allocation

The Florida State Board of Administration’s plan to increase its alternatives allocation to 16% was approved by the state legislature.

The Florida State Board of Administration has received the go-ahead from the state legislature to increase its maximum allocation to alternative assets to 20 percent, communications director Dennis MacKee told Private Equity International.

The allocation will not become effective until it is approved by Governor Rick Scott. 

The FSBA, which manages the investments of several state pension and endowment accounts, increased its target allocation to alternatives to 16 percent last year, well over its previous maximum allocation of 10 percent. The shift in the $149 billion system’s allocation mix necessitated the approval of Florida’s state government.

The FSBA received approval for a 20 percent allocation, as opposed to 16 percent, to accommodate possibly overshooting its target in the event of market fluctuations or the denominator effect, MacKee said. Building the system’s alternatives to 16 percent will likely take around three to four years, he added. 

Florida’s overall alternatives strategy will be broken up between private equity and strategic investments, which the board classifies as hedge funds, high-yield and distressed debt strategies. Overall allocation to private equity will hover around 5 percent, while strategic investments will have an 11 percent target, according to Florida documents. 

Last year, the FSBA announced that it wanted to commit up to a total of $6 billion to alternatives. In the second quarter of 2011 alone, Florida committed more than $200 million to private equity.