PensionsMarch 1, 2023

Ohio State Pension Approves New Asset Allocation

OPERS increases its exposure to alts and U.S. equities, while cutting back on fixed income and foreign equities.

Reported by Michael Katz

The Ohio Public Employees Retirement System’s board of trustees has approved new asset allocations for its defined benefit plan and health care fund that increases exposure to alternative investments, and shifts away from fixed income, foreign equities, and risk parity.

OPERS said the new allocation, which was based on recommendations by its investments staff and consultant NEPC, also reflects a slight tilt to less-liquid assets; however, it still expects the portfolio to generate returns above its 6.9% target return rate.

The pension fund increased its private equity and real estate allocations to 15% and 12% respectively, from 12% and 10%, and raised its allocation to high-yield debt and opportunistic funds to 3% and 2% respectively from 2% and 1%. It also raised its U.S. equities allocation to 22% from 21%.

Meanwhile, the portfolio’s allocation to non-U.S. equities and core bonds were cut to 21% and 9% respectively, from 23% and 11%, while it’s allocation to emerging markets debt and opportunistic investments were lowered to 1% and 2% respectively, from 4% and 3%. OPERS more than halved its risk parity allocation to 2% from 5%, which it defines as an alternative approach that focuses on risk allocation rather than capital allocation.

The pension fund also created new allocations to investment-grade credit and private credit, which now account for 2% and 1% of the portfolio respectively.

OPERS also adjusted the asset allocation for its health care fund, which includes a new internally managed investment grade credit portfolio funded from existing emerging markets debt and core bonds investments.

The health care fund’s allocation to U.S. equities was increased to 22% from 21%, while its allocations to core bonds, opportunistic, and emerging markets debt were cut to 16%, 2%, and 1% respectively, from 17%, 3%, and 2%. The new investment grade portfolio accounts for 2% of the total allocation.

In its 2023 investment plan, OPERS added that it is liquidating the remaining $50 million worth of hedge fund investments it still holds, after having axed the asset class from its lineup in 2020.