Oregon Investment Council Lifts Allocation Target To 20 Percent

The six-member council, which oversees the Oregon Public Employees Retirement Fund, voted June 27 to phase in its allocation changes over the next three to five years to position itself for an expected hike in benefit payments as more workers retire.

“We will manage the portfolio over time…to reach the 20 percent target,” James Sinks, communications director for the Oregon State Treasury, said in an email to Buyouts. “There was no discussion of selling anything off.”

Private equity holdings by the fund totaled $13.6 billion as of May 31, while public equity amounted to $24.2 billion and fixed income holdings were valued at $15.7 billion. The pension fund has been directing about $1 billion to $2 billion per year into private equity, Sinks said.

The Oregon Investment Council said private equity has been “historically the best-performing part of the Oregon portfolio,” according to a statement.

The revised investment mix will generate an estimated long-term projected annual return of 7.9 percent, according to Strategic Investment Solutions, the San Francisco-based consultant that compiled data and options during a six-month asset-liability review.

Among the changes: Oregon will trim its allocation to public equity to 37.5 percent from 43 percent; and reduce its fixed income allocation to 20 percent from 25 percent. Investments in absolute return/hedging will nearly triple to 2.5 percent from 1 percent. Real estate will get an allocation of 12.5 percent, up from 11 percent. Also, infrastructure will receive a 2.5 percent allocation, up from 1.5 percent, and hard assets will get 2.5 percent, up from 1.8 percent.

Chief Investment Officer John Skjervem said in a prepared statement the new investment mix will “better position Oregon for stability” because returns from the bond market are expected to lag, compared to the past 30 years.

Among Oregon’s investments, a 1996 vintage media and communications fund from Providence Equity Partners is tops among buyout funds with an IRR of 78.5 percent and an investment multiple of 3.32x as of Dec. 31, 2012.

The 2001 vintage energy-focused First Reserve Fund IX ranked second place with a 48.1 percent IRR and 3x multiple; and the 2002 vintage distressed debt fund, OCM Opportunities Fund IVb, which produced a 46.5 percent IRR and 2.26x investment multiple, ranked third.

On the down side, the 2006 vintage J.C. Flowers II generated a -19.6 percent IRR and 0.4x multiple as of Dec. 31.