Hawaii Employees' Retirement System Weighs More Public Equity as Private Markets Return Assumptions Fall
The Hawaii Employees' Retirement System is weighing a modest increase to public equity as part of its 2026 asset-liability study. Preliminary modeling presented to the system in September found it could lift public equity while keeping the risk-first structure it has run since 2015. No decision has been made, and no revised targets have been published.
What changed in the assumptions
The study rests on updated long-term return assumptions, and the private markets numbers moved the most. Expected returns for private equity fell to 9.0% from 9.8%, and for private credit to 7.8% from 8.7%. Liquid credit fell to 5.5% from 6.3%, and public equity to 6.3% from 6.7%. Real assets went the other way: real estate rose to 7.5% from 7.2% and infrastructure to 7.6% from 7.3%.
Private credit took the largest cut, at 0.9 percentage points, followed by private equity at 0.8 points. Of the six asset classes, four (67% by count) saw lower expected returns and two (33%) saw higher ones, and both of the increases were in real assets.
The LP behind the study
The system managed about $25.7 billion at 31 March 2026. Private equity was about $5.25 billion, or 20% of the fund, held through five manager relationships. Private credit was about $1.73 billion, or 7%, spread across 15 managers. Real estate was about $2.79 billion, or 11%, across more than 57 fund and account relationships. Together, those three private markets sleeves were about 38% of capital. Funded status is projected at about 65% for fiscal 2026, with a 19-year funding period, close to what the system's 2019 and 2023 studies projected.
How it compares
This is the second US public plan this month that FundLinx has tracked considering a move toward public equity, a small but notable shift among US pension funds after years of adding to private markets. As we covered, the Washington State Investment Board weighed a 50% equity allocation for its WA Cares fund. The difference in Hawaii is that the shift is driven by lower expected private markets returns, not a new fund being built from scratch.
What GPs should do
Private credit managers should read this most closely. With 15 managers holding 7% of the fund and the steepest assumption cut, the credit sleeve is where any reallocation is most likely to show up first. Real estate and infrastructure managers have the opposite signal, since both assumptions rose. Private equity GPs should expect pacing questions and closer scrutiny of the management fee, because a lower expected return leaves less room for fee drag. Our guide to 2026 LP allocation trends tracks how other plans are making the same trade-off, and our piece on how to read LP quarterly updates shows how to spot these shifts early. FundLinx members can see which pensions are resetting allocations this quarter.
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