Oregon Investment Council Reshapes Portfolio Goals including Real Estate-Oriented Investments & Alternative Funds


(Photo above: The Oregon Investment Council listens to a presentation on Dec. 9 about the KKR Americas Fund XII LLP by George Roberts, Co-Chairman & Co-CEO of Kohlberg Kravis Roberts & Co. | courtesy of Oregon State Treasury)

The Oregon Investment Council (OIC) says it is taking steps to strengthen the long-term stability of the state’s public trust funds, including the Oregon Public Employees Retirement Fund (OPERF).

OPERF has achieved solid long-term returns and is rated highly compared to peers. Decisions made recently by the OIC will better diversify the globally invested pension fund, which totaled $69.7 billion as of November 30, 2015.

“As fiduciaries of Oregon’s public trust funds, the OIC seeks the highest value for taxpayers, schoolchildren, injured workers and public retirees,” said State Treasurer Ted Wheeler, who is one of six members of the OIC. “Financial markets are dynamic and increasingly competitive. These decisions are geared to improve the fund’s sustainability and better moderate volatility over time.”

The steps approved Wednesday include:

• Rebalancing the composition of expected returns of real estate-oriented investments, which historically emphasized capital appreciation over current income generation. Going forward, investment staff will pursue a more balanced real estate return profile.

• Affirming an ongoing strategic shift that is boosting Oregon pension fund investments in a class known as “alternatives,” including infrastructure, agriculture and timberland. Returns on these investments are “less correlated” to traditional stocks and bonds and thus improve overall fund diversification, said Chief Investment Officer John Skjervem.

• Continuing Oregon’s long-standing and productive relationship with Kohlberg Kravis Roberts & Co., which dates to 1981, the OIC approved a new commitment of as much as $500 million to KKR Americas Fund XII L.P., contingent on negotiation of terms and legal approval. Since the first partnership with the company, Oregon investments with KKR have generated average annual profits to the pension fund of 18 percent.

• Increasing the fund’s infrastructure and renewable energy investments with a new $400 million commitment to Global Infrastructure Fund III, contingent on negotiation of terms and legal approval. This commitment is part of the fund’s aforementioned allocation to alternatives, and, by extension, its exposure to investment strategies less correlated with stock and bond market volatility.

The changes announced Wednesday represent the culmination of portfolio restructuring that Treasury staff, the OIC and its consultants have been steadily advancing since asset-liability studies in both 2013 and 2014. Those analyses emphasized a need for a more holistic approach to asset allocation and portfolio construction relative to the fund’s various return opportunities and risk exposures.

The Council’s decisions Wednesday also coincide with its continuing focus on minimizing investment management and related transaction fees in order to maximize net returns for fund beneficiaries.

OPERF posted a 7.3 percent return in 2014 and as of November 30 had returned 1.2 percent for the previous 12-month period. Under current policy, the fund’s assumed earnings rate is 7.5 percent, and investment returns now cover about 70 cents of every $1 paid in retirement benefits.

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 higher education, and make smart financial choices.


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