Ohio teachers up alternatives mandate

STRS approved an increase of its opportunistic allocation totalling $5.4bn.

The State Teachers Retirement System of Ohio has increased its opportunistic and diversified strategies allocations by three percent, the pension said on Friday.

At last week’s meeting, the board voted to increase these buckets, which include commitments to infrastructure and specialty finance, from 7 percent to 10 percent, according to a statement.
“The new asset mix is designed to provide lower volatility with a slightly lower expected rate of return,” the fund said in a statement on its website. “The asset mix includes investments that will be easier to convert to cash when benefit payments are due each month.”

The pension’s opportunistic and diversified credit portfolio totalled $5.4 billion as of 28 February, according to the latest investment report. That’s 7.3 percent of its total portfolio of $73.3 billion.

The opportunistic and diversified allocation consists of 54 commingled funds and investments involving US and international energy, infrastructure and specialty finance and “generally are long-term lock-up vehicles,” the STRS annual report states. The strategy targets “public equity-like returns defined as 1% net of fees below domestic public equity markets over moving 10-year periods”.

The fund did not respond to a request to comment. 

The board also approved an increase in the fund’s fixed-income portfolio, which includes debt securities and real estate investments, from 18 to 21 percent.

The board’s decision was based on the asset allocation recommendations that Callan Associates presented the previous month, drawn from a study the San Francisco-based consultant conducted on the pension’s portfolio on how to lower the risk-return profile.

The fund has reduced its expected investment return to 7.45 percent from 7.75 percent, as “assets are not expected to grow as fast as needed to pay benefits”.  This was based on a separate review of the pension’s portfolio performance over the past five years by the consultant Segal.

Over the five-year period between fiscal years 2012 and 2016, the fund’s portfolio grossed a return below its assumed actuarial return, earning a 7.69 percent annualized return over that time period, the investment report shows.

The pension, which manages the pension assets of current and retired public educators in Ohio, invests in US and international credit, private equity, and real estate. The pension has commitments in the Fortress Real Estate Opportunities Fund II and the TPG Opportunities Partners II funds, according to PDI data.