The Ohio Public Employees Retirement System investment staff this year will be incorporating new asset allocation targets that include a small shift away from equities as well as the introduction of a floating, or dynamic, policy target.
The 2012 OPERS Annual Investment Plan outlines the main asset classes and key management characteristics of the OPERS Defined Benefit, Health Care and Defined Contribution funds. In addition to asset allocation, the plan includes target percentages for return benchmarks, investment strategy and the use of active and passive management.
The new plan, approved by the OPERS Board of Trustees in January, incorporates the strategic asset allocation targets approved by the board in 2009 and 2011.
OPERS asset allocation targets
Here are the highlights of the changes:
The Defined Benefit Fund’s Public Equity allocation will decrease by 5 percent. The Hedge Fund sub-asset class will increase by 3 percent, and the Fixed Income asset class will increase by 2 percent.
Within the 2 percent, Fixed Income allocation:
- 0.5 percent will go toward the implementation of a new, Internal Credit portfolio;
- 0.5 percent will be used to expand the Global High Yield sub-asset class;
- 1.0 percent will be used to expand the Emerging Markets Debt sub-asset class.
The Health Care Fund’s Public Equity allocation will decrease by 5 percent. The Hedge Fund sub-asset class will increase by 3 percent, and the Fixed Income asset class will increase by 2 percent. Within the 2 percent, Fixed Income allocation:
- 1.0 percent will go toward implementation of a new, Internal Credit portfolio;
- 1 percent will be used to expand the Global High Yield sub-asset class.
For the DB fund, the main asset class targets are 45 percent for public equities, 27 percent for fixed income and 28 percent for alternatives.
Thanks for letting us know. I expect that most of us were impressed and relieved that OPERS was able to weather the 2008 market disruptions with relatively light damage.
I’m no investment wizard, so maybe you can explain – with the increased exposure in hedge funds and emerging market dept, would you say that this modified investment strategy is a somewhat less conservative one than OPERS has followed in the past? If so, what are the potential risks and rewards?
David,
OPERS Board of Trustees consultant NEPC says the changes to the defined benefit plan asset allocation not only bring better balance to portfolio exposures, they improve the expected risk-adjusted returns.
For instance, moving from the current allocation target to the new target increases the “Sharpe ratio,” or return per unit of risk, from 0.514 to 0.528.
The changes in the health care fund asset allocation are forecasted to result in a similar improvement in risk-adjusted returns.
– Ohio PERS
Could you please tell us what this means in a way we can all understand? thank-you.
Sure, Julie.
OPERS is changing the asset allocation of its defined benefit and health care funds, moving 5 percent of investments from equities to hedge funds and fixed income.
– Ohio PERS
Considering the stock market is right at its all time high, and disaster usually follows, this is probably a very good move. But the real concern for us is the current so called ‘independent study’ contracted out by the legislature, paid for by us. Going to get ugly I suspect.
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