Oregon Investment Council Revises Pension Portfolio Mix

New allocation will tap new opportunities, increases diversity and hedge against possible inflation

The Oregon Investment Council revised on Wednesday the portfolio mix for the Oregon pension fund, following a six-month asset and liability review that considered potential opportunities and risks.

The six-member council oversees investment policy for the Oregon Public Employees Retirement Fund, which is invested on behalf of beneficiaries and ranks among the best-performing large pension funds in the nation, according to independent reviews. The fund stood at $63.2 billion as of May 31.

The new strategy will reduce the percentage of the portfolio that will be steered to public stock and fixed income investments such as bonds, and will increase exposure to asset classes such as real estate, hedged strategies, commodities and infrastructure.

“The Oregon portfolio has been among the strongest performers in the nation,” said Keith Larson, chairman of the Oregon Investment Council, vice president of Intel Capital, and a member of the board of Regents at the University of Portland. “To maintain returns, we need to be cognizant of risk and stay ahead of the curve in a dynamic market environment.”

The changes in target investment strategy will be gradually phased in over the next three to five years.

The new mix resets the target for private equity, an asset class that is historically the best-performing part of the Oregon portfolio. The revised allocation for private equity is now 20 percent, which represents an increase from the previous policy target of 16 percent — but is lower than the portfolio’s current private equity allocation of 22 percent.

The changes also anticipate that the pension fund will pay a higher level for benefits as more workers retire in the near future.

The revised investment mix will generate an estimated long-term projected annual return of 7.9 percent, according to Strategic Investment Solutions, a San Francisco-based consultant firm that was retained to compile data and options during the asset-liability review.

The portfolio targets were revised as follows:

• Public Equity (current 43 percent, new 37.5 percent)
  • Private Equity (current 16 percent, new 20 percent)
  • Fixed Income (current 25 percent, new 20 percent)
  • Real Estate (current 11 percent, new 12.5 percent)
  • Absolute Return / hedging (current 1 percent, new 2.5 percent)
  • Commodities (current .7 percent, new 2.5 percent)
  • Infrastructure (current 1.5 percent, new 2.5 percent)
  • Hard Assets (current 1.8 percent, new 2.5 percent)

Chief Investment Officer John Skjervem said the new investment mix is a responsible course correction based on risk and return, and will better position Oregon for stability because returns from the bond market are expected to lag, compared to the past three decades.

The Council’s next asset and liability review will occur in three years.

State Treasurer Ted Wheeler, who sits on the OIC, recognized Skjervem and his investment staff for their efforts to modernize the portfolio, gather the best available data, and be better prepared to manage risk. “The long-term health of Oregon’s public investments is important to every Oregonian,” he said.

The Oregon State Treasury protects public assets and saves Oregonians money through its investment, banking, and debt management functions. State investment policies are overseen by the Oregon Investment Council. The State Treasury also promotes public outreach and education to help Oregonians learn strategies to save money, invest for college and make smart financial choices.