House Bill 4144 responds to analysis that shows Oregon spends more on fees than peer states.
The Oregon Investment Council is asking lawmakers to modernize and restructure the state’s investment efforts in a way that would save billions of dollars over time.
Surging markets in 2013 helped the Oregon Public Employees Retirement Fund climb to a new high at $67.1 billion as of December 31. But the Investment Division’s 1970s-era structure means that Oregon is paying top dollar to outsource much of its daily asset management activities.
An analysis by Toronto-based CEM Benchmarking shows that the Oregon pension fund is currently a “high cost” fund compared to a composite of 19 peers nationally, in large part because of Treasury’s heavy reliance on outsourcing.
In addition, a 2012 comparison of peer funds by Funston Advisory Services LLC shows that Oregon lags when it comes to crucial risk management oversight capacity.
“The Investment Modernization Act is a reflection that — while the investment world has changed markedly in the past three decades — Oregon’s investment program has not kept pace,” said Keith Larson, vice president of Intel Capital and a member of the Investment Council.
Added State Treasurer Ted Wheeler, a member of the Investment Council: “The Investment Modernization Act will be a step forward for Oregon. It will improve how we protect public trust funds and also will reduce, by millions, the fees that are now required to manage our public investments.”
The proposed legislation, House Bill 4144, would establish the Oregon Investment Department as an independent agency, overseen by the Investment Council, and would allow the Investment Division to hire additional staff in Oregon to oversee risk management and fund accounting. The amortized savings of this approach could add up to an estimated $2.7 billion over 20 years.
The Oregon Investment Council and Investment Division staff would remain subject to current ethics, transparency, personnel and investment rules.
Currently, the Oregon pension fund incurs annual management fees of about 78 cents for every $100 of fund assets, compared to 68 cents for the peer fund in Washington state and 38 cents for the peer fund in Wisconsin. The savings projection connected to House Bill 4144 assumes Oregon would, by expanding its internal management capabilities, whittle annual fees to the same level as the Washington State Investment Board.
Oregon Chief Investment Officer John Skjervem said the proposal to revamp how funds are overseen will fortify and extend the Investment Division’s position as an innovative, top-performing institutional investor, and provide additional internal resources for more effective risk management.
The pension fund registered a 15.6 percent return in 2013, according to State Street Bank, and reached a new asset value record of $67.9 billion. That eclipses the previous high of $66.8 billion, set in October 2007, just months before the onset of the 2008-09 global financial crisis.
In other news Wednesday, the Investment Council:
• Approved a $700 million commitment on behalf of the Oregon Public Employees Retirement Fund to TPG Capital Partners Strategic Account LP, a private equity buyout fund, contingent on negotiations of final terms and legal approval.
• Approved a $250 million commitment to TPG Special Situations Adjacent Opportunities Partners LP, which will be part of the investment mix for the Opportunity Portfolio of the pension fund. The investment will focus on global opportunistic credit.
• Welcomed Richard B. Solomon for a second stint as chairman of the Council. Solomon, a Portland accountant, was first appointed to the OIC in 2004 by Gov. Ted Kulongoski and served as chairman from 2006 to 2008.
• Was informed by the Chief Investment Officer of a staff realignment, effective Feb.1, at the Investment Division.
o Senior Investment Officer John Hershey will assume a newly created position as Director of Alternative Investments. He will become responsible for leading Oregon’s team for alternative, opportunistic, real estate and private equity strategies.
o Senior Investment Officer Perrin Lim will assume a newly created position as Director of Capital Markets. He will be responsible for the group overseeing public equities and fixed income strategies.
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.