"We're taking a fresh approach to how we view our asset allocation," said Michael Burns, CEO. "We're recognizing that some investments within an asset class may have more in common with other asset types with regard to expected risk and return. And since our goal at the highest level is to balance the risk and return of the total portfolio, it makes sense to segregate assets by their characteristics, rather than simply by type."

The fund's new asset allocation is:

2 percent: Cash (investments with a duration of less than 12 months)

6 percent: Interest rates (government or government related bonds)

53 percent: Company exposure (stocks, corporate bonds and private equity)

18 percent: Real assets (Real estate, infrastructure and TIPS)

21 percent: Opportunity pool (includes absolute return and distressed debt)

The allocation includes real return mandates, a new allocation for the permanent fund. In the fund's absolute return mandate, managers generally focus on publicly traded assets, such as stocks and bonds.

Under a real return mandate, managers would invest in the same range of assets as the permanent fund. They would be required to structure their portfolios to meet a 5 percent real return target with a same level of risk as the full permanent fund portfolio.

"This is a new approach to investing for us, in effect creating mini-funds within the permanent fund," said Burns. "Not only will there be the benefit of a portion of the fund having the same risk and return profile as the entire fund, but we'll also be able to see their approach to asset allocation, how it differs from our approach and how our results compare."

The board authorized Callan Associates to begin a search for up to four real return managers, and plan on allocating $500 million to each of the successful candidates.

Other actions that the board took during the two-day meeting included approving a new private equity investment policy resolution that includes a $500 million commitment for fiscal year 2010 and greater flexibility for staff to manage the portfolio directly; approving a new fixed income resolution that includes removing the benchmark for the full domestic portfolio and allowing the CIO discretion to apply appropriate benchmarks to subdivisions of the domestic portfolio; and reviewing the plan for providing the necessary funds to pay the fall 2009 citizen dividend.

The next scheduled board of trustees meeting is Sept. 23 and 24 in Anchorage.