The State Teachers Retirement System of Ohio, a pension fund serving 500,000 current and retired educators, announced it returned 7.55% for the 2023 fiscal year, which ended June 30. The return came despite alternatives within the fund returning negative 1.41%, a stark reversal from recent performances. The system had $87.5 billion in assets under management as of September.
In the Ohio STRS portfolio, alternative investments had in recent years outperformed the rest of the fund’s holdings. In the past three, five, 10 and 20 years, the Ohio STRS returned 10.18%, 8.07%, 8.60% and 8.28%, respectively. Alternative investments during these periods returned 19.16%, 12.64%, 11.39% and 11.75%, respectively.
While alternatives’ performance has typically been stronger than the rest of the portfolio, officials refrained from increasing allocation to alternatives, citing high risks involved, and that decision paid off in fiscal 2023. The fund also announced net returns of negative 2.29% for September and negative 1.72% for fiscal 2024 to date.
Ohio STRS also announced some changes to its asset allocation at an October 19 meeting of its investment department: The fund allocated $550 million to domestic equities, while reducing its allocation to fixed income by $500 million.
Ohio STRS also increased its expected 10-year policy and total returns for every single asset class, in some cases by more than 100 basis points. The pension fund now expects a total return of 7.57%, up from 6.43%. Ohio STRS expects 10-year returns to come in at 7.17%. Consultant Callan LLC recommended the changes based on Callan’s capital market assumptions and a 10-year forecast of asset returns that “increased meaningfully from 2022 forecasts,” following a 2022 study.
The board also discussed ways to save on fees and other costs. One option was adopting a “Canada model,” in which the fund makes direct alternative and private equity investments, like leveraged buyouts, instead of investing in a private equity fund that makes those investments. However, some board members pushed back on this idea, citing high investment-banking fees.
The pension fund is currently 81% funded and is projected to be 100% funded by 2035. STRS Ohio expects the fund to be 127% funded by 2043.
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Tags: Ohio, Pension, State Teachers Retirement System of Ohio, STRS, STRS Ohio