|
This
reaction provides us with a real-time reminder that economic cycles and
financial markets can be volatile. While the recent economic expansion—the
longest in our country’s history—has been a powerful tailwind as we invest and
manage Oregon public employees’ retirement funds, we know that the investment
decisions we make for OPERF have to stand over the long haul, in both up and
down markets.
We
can't predict how the spread of COVID-19 will affect global economic activity
and financial markets. Instead, to prepare for whatever the future may bring,
Treasury has taken deliberate steps over the past several years to make OPERF
more resilient in anticipation of changing environments:
We’ve reduced and re-balanced risk
across the portfolio. We’ve lowered the amount of
capital allocated to private equity, and made changes to OPERF’s fixed income
and real estate investment strategies so that those important asset classes
play more pronounced,
defensive roles should the economy enter a downturn. We’ve lowered the amount of
capital allocated to private equity, and made changes to OPERF’s fixed income
and real estate investment strategies so that those important asset classes
play more pronounced,
defensive roles should the economy enter a downturn. We’ve reduced the fund’s operating expenses
by increasing the proportion of assets managed internally by Treasury
staff. We’ve increased our
corporate governance activities to ensure that our investment practices pursue
strategies that produce
strong, sustainable long-term results.
This
does not mean OPERF is immune to economic uncertainty and financial market
volatility. Instead, these steps have improved the portfolio’s resiliency so
that it’s better positioned to weather all types of economic and financial
market conditions.
We've
seen this play out over the last two years. At the end of 2018, stock prices
dropped sharply, but OPERF posted modest positive returns while other public
plans ended 2018 in the red. In 2019, OPERF was up 13.6 percent —a good absolute result,
and nearly double the fund’s assumed rate. Compared to similar public pension
plans, we were able to achieve our returns while maintaining much less exposure
to stocks and other risk-based assets.
There's
a lot of uncertainty right now surrounding COVID-19 and its broader effects. Please
know that we'll continue managing Oregon’s $80 billion public employees
retirement fund with a focus on sustainable, long-term returns and strong risk
management practices that fortify portfolio resiliency on behalf of both
current and future PERS beneficiaries.
One
more thing: the investment portfolio also includes the Individual Account Program’s Target
Date Funds.
In these funds, PERS members’ investment risk tolerance is aligned with age.
The closer you are to retirement, the more exposure you’ll have to bonds and
other lower-risk investments. Younger members with longer retirement horizons
will have more exposure to stocks and other higher-risk investments.
While
our Treasury investment team tracks fund performance every day, PERS credits
Target Date Fund earnings to your IAP account once per year, in the spring. The
upcoming credit to your IAP account, following the March 30, 2020, PERS board meeting,
will reflect investment performance for the 2019 calendar year. For current
state employees, changes happening in the stock market right now and over the
next nine months won't affect your IAP account
until the spring of 2021.
Thank you for reading. I
hope this information is useful, and I hope learning more about the strategies
behind how Treasury invests your retirement funds is helpful to you as Oregon
continues our response to COVID-19.
Sincerely,
Tobias Read
Oregon State Treasurer
To stay involved and learn
more, sign up for Treasury’s Invested for You newsletter and information from PERS.
|