As public portfolio approaches $100 billion, Legislature authorizes 70 percent boost in investment staffing.
The Oregon Investment Council and State Treasurer Tobias Read announced that the Oregon State Treasury will improve its internal management capabilities to better oversee the state’s near-$100 billion investment portfolio.
The move will save millions of dollars for Treasury-managed investments including the Oregon Public Employees Retirement Fund. That’s because more Treasury capacity, in addition to yielding better fund oversight and analysis, will reduce the need for outsourcing to Wall Street investment managers and traders.
The new staffing strategy was approved by the 2017 Legislature and signed into law by Gov. Kate Brown.
“This modernization is a critical step to better protect the financial interests of every Oregonian, including PERS participants,” said Rukaiyah Adams, chair of the Council and Chief Investment Officer at Meyer Memorial Trust in Portland. “Today’s markets are increasingly complex, our portfolios are growing, and Treasury needs appropriate capacity and resources to stay abreast of new opportunities and elevated risks.”
“Oregonians statewide will benefit from Treasury’s improved management capabilities and the millions in investment-related cost savings that we will achieve,” said Treasurer Read, also a member of the Oregon Investment Council.
The budget – passed as Senate Bill 5541 – adds 27 new positions to the Investment Division over the next two years, bringing total division staff to 66 positions. The division oversees investment analysis and selection, securities trading, accounting, financial reporting, legal and compliance monitoring.
The new budget also bolsters agency cybersecurity and adds support staff.
Treasury’s current operation relies heavily on outside expertise to handle the day-to-day management of an investment portfolio that stood at $95.5 billion as of June 30. The largest fund under Treasury management is the pension fund, which totaled $73.6, a record high. Treasury also manages the State Accident Insurance Fund, Oregon Short Term Fund, Oregon Common School Fund, and other smaller funds.
The additional staff is part of a multi-year modernization effort that began in 2015 with technology upgrades for risk management and securities trading. The improvements have been sought since studies in 2011 and 2012 identified mounting investment and operating risks, due to anemic staffing and insufficient oversight resources.
Treasurer Read applauded the governor and legislative leadership for facilitating the shift to a more cost-effective model.
At the end of 2014, Treasury managed approximately 22 percent of the state’s overall investment portfolio, and hired external firms to manage the remaining 78 percent. With new internal capacity, the proportion of Treasury-managed assets will climb.
New positions approved in 2017 include investment officers focused on private equity, real estate and other alternative investment strategies — as well as an officer-level position specializing in risks and opportunities connected to Environmental, Social and Governance (ESG) factors.
The new budget blueprint also provides additional resources for critical functions such as trade origination and reconciliation, performance analysis and enhanced monitoring and compliance.
Investment fees are the source of Investment Division funding, not the state General Fund that pays for schools and public safety, and the cost of the newly authorized positions will be more than offset by savings from Treasury’s increased internal management activities. The Oregon Investment Council is responsible for deciding which parts of the portfolio to manage internally, and that will decide the ultimate level of annual savings.
The pension fund is globally-diversified and was recently ranked as the top performing fund among its public pension peers over the past decade.
Treasury will give lawmakers a progress report in 2018 on its increased internal management capacity and corresponding cost savings.
The creation of a dedicated ESG investment officer is a priority for Treasurer Read and will help fortify an already comprehensive corporate governance program that engages with public companies and regulators to promote long-term sustainability, shareholder value, and market stability.
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 OregonSaves. 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.
