Maryland's pension fund plans to hike its commodities exposure to roughly $1.5 billion over the next year, doubling an inflation hedge that will make it one of the nation's bigger investors in the sector. The allocation shows that the decade-long trend toward greater investment in energy, metals and agricultural markets is far from over.
A survey of 215 US and Canadian public pensions released this week found that they expected to double their holdings in the sector to 2 percent within two years. As part of its annual portfolio review last month, the Maryland State Retirement and Pension System has decided to increase its commodities share to as much as 4.5 percent of its total $37 billion, Robert Burd, deputy chief investment officer, told Reuters in an interview.
That's up from around 2 percent, or $760 million, now, adding to an investment that initially commenced in 2009, after commodities had collapsed from record highs in mid-2008. "We have investments in commodities to increase the diversification of the fund and to provide some protection if we see some inflation shocks," Burd said.
The decision, which takes effect July 1, will lift the relatively small US pension fund into the upper leagues of institutional investors with commodity holdings, joining the likes of California's CalPERS, which has $2.7 billion and the Pennsylvania Public School Employees Retirement System, which has $2.6 billion or 5.2 percent of its total.
While small compared to the estimated total $450 billion of investor capital in commodity markets, Maryland's investment is a significant indicator that the gradual tightening of global monetary policy after years of stimulus has not quashed the expanding appetite for exposure to raw materials. However, like Maryland, more and more funds are opting for active rather than passive strategies. Maryland's funds are invested via active asset managers including Cargill's Black River and Schroders, some of which is benchmarked against the Dow Jones UBS Commodity Index.
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