Oregon Investment Council says it has reduced fund volatility to improve long-term stability and inflation protection.
The Oregon Public Employees Retirement Fund (OPERF) earned a 6.9 percent investment return in 2016, according to figures presented this week to the Oregon Investment Council. As also reported, OPERF’s ending balance as of December 31, 2016 was $70.5 billion.
The globally-diversified trust fund is managed by the Oregon State Treasury on a long-term horizon and for the exclusive benefit of roughly 347,000 current and future public sector retirees in Oregon.
In 2015, the fund earned a 2.1 percent return. Stronger investment returns for 2016 compared to 2015 were attributable to a rebounding stock market, as about 38 percent of capital is allocated to public equity securities.
Fund performance does not track the stock market exactly, however, as the other 62 percent of OPERF’s investments are diversified across a broad range of asset types – from real estate to bonds to timberland to venture capital.
The Investment Council, which sets investment and asset allocation policy for all Treasury-managed trust funds, has been deliberately lowering exposure to stocks and other equity-related securities in order to reduce the fund’s cyclical volatility. The upshot of this strategy is that the fund is less likely to experience upward spikes in bull markets, but its value should also be better protected during market downturns. The decision to moderate fund volatility was made by the Council following the fund’s sharp decline in value during the 2008-09 global financial crisis.
Compared to a decade ago, the pension fund’s asset allocation profile now includes larger commitments to a category of investments known as “real assets,” which includes mining, agriculture, shipping and timberland. These investments should dampen overall fund volatility and provide improved protection against future inflation. Other alternative investment strategies have been implemented to lower the fund’s correlation to short-term fluctuations in global stock and bond markets.
“The Oregon Public Employees Retirement Fund is invested for a 20-year horizon and the strategic changes approved by the OIC in recent years will increase the likelihood of steadier long-term fund performance across all market cycles,” said John D. Skjervem, chief investment officer.
The target “assumed rate” for the pension fund is 7.5 percent. The assumed rate, set by the state Public Employee Retirement System board, is the average annual investment return that the fund is expected to earn over decades.
As of December 31, 2016, OPERF realized a 9.1 percent average annual return for the past 5 years and a 5.9 percent average annual return for the past 10 years, a decade that included the severe bear market of 2008-09.
The Oregon State Treasury protects public assets, saves money, and helps Oregonians to invest in themselves and their families through empowerment programs like the Oregon 529 Savings Network and Oregon Retirement Savings Plan. Treasury oversees public investment, banking, and debt management services. State investment policies are set by the Oregon Investment Council. Treasury also promotes public outreach and education to help Oregonians learn strategies to save money and make smart financial choices.
