Ohio Police & Fire Fund to Boost Junk Holdings as Equities Cut

The Ohio Police & Fire Pension Fund is boosting its holdings of high-yield debt, including floating- rate bank loans, while reducing equities to limit volatility.

The fund, which represents active and retired police officers and firefighters from Ohio municipalities, plans to lift its allocation of speculative-grade debt to 15 percent of its $13.34 billion from 12.3 percent in as soon as two years, Executive Director John Gallagher said. PENN Capital Management Co. Inc. and MacKay Shields LLC were approved to invest $400 million in senior bank loans in June, increasing the high-yield allocation to $1.65 billion.

“It’s an effort to get more fully diversified across the portfolio so we can absorb equity-market risk when it takes a turn like it has in both directions,” Gallagher said in a Sept. 17 telephone interview. The goal for investing in bank loans was to “keep it in the fixed-income market that we thought would be a little less volatile and a little less exposed,” he said.

The fund, based in Columbus, Ohio, has increased its allocation of debt rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s from 9.3 percent at year-end, or $1.22 billion, according to its annual report.

The fund’s U.S. equity holdings fell to 27.8 percent as of July 31 from 32.2 percent at the end of 2012, according to the report. Its non-U.S. equity holdings increased to 24.2 percent from 23.7 percent.

Floating-rate bank debt is paid based on a spread over the London interbank offered rate, or Libor, the rate at which banks say they can borrow from each other. It was set at 25 basis on Sept. 20. A basis point is 0.01 percentage point.

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