Asset AllocationAugust 14, 2023

Public Equities Drag Orange County Pension Investments 7.8% Lower in 2022

The portfolio’s market value dropped by more than $2 billion last year to $20.2 billion.

Reported by Michael Katz

The Orange County Employees Retirement System’s investment portfolio lost 7.8% in 2022, as public equity losses helped drag the market value of its portfolio down to $20.2 billion from $22.5 billion at the end of 2021, according to its annual comprehensive financial report.

OCERS also reported that its annualized returns, net of fees, over the trailing three-, five- and 10-year periods were 6.2%, 6.1% and 6.9%, respectively, as of year-end 2022.

The pension fund’s global public equity portfolio fell 18.5% during the year, with U.S. equities tumbling 19.1% and non-U.S. equities dropping 14.7%, while emerging market equities were the worst-performing asset class, diving 25.1% in 2022. At the same time, the fixed-income markets failed to provide a safe port in the storm, losing 10.5% during the year.

OCERS blamed the public market losses on “persistently high inflation” and Russia’s invasion of Ukraine. It also said that as inflation remained well above expectations throughout the year and central banks ratcheted up interest rates, it “brought an end to more than a decade of easy money Federal Reserve policy.”

Real assets were the top-performing asset class for the pension fund, returning 18.7% during the year and easily beating its benchmark’s return of 10.98%. Within the asset class, private real assets returned 24.5%, as energy and infrastructure assets benefitted from high inflation, and the real estate portfolio gained 14.2%, thanks to a strong performance from the industrial and multifamily sectors.

Risk mitigation assets returned a shade more than 7%, which trounced the benchmark’s 0.24% loss for the year. Meanwhile, the pension fund’s private equity investments returned 0.54%, underperforming their benchmark, which returned 2.52% last year.

The pension fund noted that because it is customary to report private market performance on a quarterly lag, its year-end performance for many private equity, private credit and private real assets managers will reflect returns as of the end of 2022’s third quarter.

OCERS’ asset allocation as of the end of 2022 was 44% public equity, 16% private equity, 14% real assets, 9% risk mitigation, 8% core fixed income, 7% credit and 2% cash and cash equivalents.