The Public Employees Retirement Association of New Mexico is to boost its real assets portfolio from 13% to 20% as part of its new asset allocation.
The new real assets category will comprise liquid and illiquid real estate, real assets and market-neutral hedge funds.
The pension fund said in a board meeting document that the long-range goal was to achieve higher returns and reduce volatility.
The new investment model is projected to increase returns by 19 basis points and reduce modelled volatility by 72 basis points.
New Mexico PERA completed the allocation on the advice of its general investment consultant, Wilshire Associates.
The pension fund is planning to make its first real estate move from the new asset allocation via a core real estate manager search later this year.
New Mexico PERA has no exposure to core real estate in its $600m (€530m) real estate portfolio, which includes investments in value-add and opportunistic investment strategies.
Kristin Varela, real-returns portfolio manager at the pension fund, said it had yet to decide how much capital to earmark for the core manager search.
The pension fund will be open to investing in core funds that have either a closed-end or open-ended investment structure.
New Mexico will not conduct the search through a traditional RFP format.
The pension fund and its alternatives investment consultant, Cliffwater, will be coming up with a suitable list of candidates for the investor to consider in future.
Investments outside real estate could include infrastructure, agricultural and energy.