A Strategic Asset Allocation for Enhanced IncomeAStrategicAssetAllocationforEnhancedIncome

Overview 

A large public pension plan was seeking to build an opportunistic credit portfolio through a $1 billion multi-asset credit mandate. PGIM Multi-Asset Solutions (PMA) partnered with this plan to understand their needs and design a strategic asset allocation leveraging PGIM’s broad capabilities.

Key Partners

• Large public pension plan
• PGIM Multi-Asset Solutions

Challenge

The plan, which was underfunded, was looking to address the funding gap with a focus on enhanced risk-adjusted returns and income. Their goal was to construct a portfolio of performing credit investments with differentiated characteristics from equities, delivering stable income through contractual cash flows across multiple credit sectors. Their focus was on relative value. 

Approach

PMA worked with the public pension plan to understand their liquidity needs and risk tolerances to define an “investible universe” of assets. PMA uncovered that they wanted to de-emphasize traditional high yield bonds and leveraged loans while identifying compelling opportunities that offer strong risk-adjusted returns with downside protection, and with an appetite for private assets ranging from 30-50%. PMA leveraged these inputs to design a preliminary multi-asset class portfolio, which PMA presented to the plan. The plan targeted 150bps over a blended high yield and bank loan benchmark, balancing return generation with a disciplined risk approach. 

Solution

The solution prioritized diversification, downside resilience and income stability. The plan was also focused on risk considerations. We leveraged our proprietary risk frameworks to optimize portfolio construction with robust risk analytics. We actively assessed sector correlations, liquidity dynamics, and downside scenarios to ensure the portfolio could remain stable across market cycles.  

 

^{Case studies are provided for illustrative purposes only and results may vary.}