AW 2022 Outlook: Connecticut Retirement Plans & Trust Funds

Connecticut State Treasurer Shawn T. Wooden is the only elected African-American State Treasurer in the country, the sole trustee of the Connecticut Retirement Plans & Trust Funds and has been a leading decision-maker when it comes to tapping into alternative investment strategies.

Shawn T. Wooden (provided)

He was elected in 2018, and has been serving in this role since January 2019, following a successful 21-year career as an investment attorney specializing in public pension plans.

In this latest installment of our Alternatives Watch 2022 Outlook, we wondered what the prospects look like for public pension fund investors, especially as inflationary pressures come to the foreground.

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Over the next 12 months, how are you formulating your portfolio allocations? What is top of mind? 

We are conducting an asset allocation study this year, with the objective of re-optimizing our portfolio allocation targets to best position Connecticut to achieve targeted return goals while minimizing risks. I believe a refresh of our allocation targets is particularly important considering the significant changes in capital market assumptions since we completed our last asset allocation study in 2019. 

In the meantime, we remain concerned with the risks of persistent inflation and rising interest rates in addition to asset valuation levels, which have generally remained at the higher end of historical ranges. 

As we approach the third year of the pandemic, what are your thoughts about the macroeconomic picture? 

The U.S. economy, corporate America, and the consumer have all shown resiliency throughout this unprecedented COVID-19 pandemic period. Economic growth supported by fiscal stimulus, personal savings, strong employment, and increased wages is expected to be strong in 2022 and beyond.

In Connecticut, we will continue to work towards creating sustainable long-term returns while exercising prudence and discipline in our investment approach. I am also proud that our state’s improved fiscal standing is bringing long-term benefits to Connecticut’s finances, helping to grow our economy at a critical point in our state’s history. From achieving major credit rating upgrades for the first time in over two decades to making a significant additional payment towards the state’s long-term unfunded pension liabilities, we have put the state on a more sustainable financial path as we work with our federal and state partners. 

What role do you see private capital playing in your portfolio going forward? 

Private markets have been an important component of our overall portfolio construction goals due to both the attractive return potential and added diversification benefits. As long-term return assumptions for traditional public fixed income and equity markets temper, I believe private markets will play an increasingly important role for us. 

While the return outlook for private asset classes may also be lower than historical returns, we believe private equity, for example, still provides an opportunity to outperform public equities on a relative basis. Our real estate and infrastructure portfolios can also significantly mitigate the risk of inflation through the nature of rents or contract terms, which are subject to inflation adjustments. 

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