US - The Ohio Public Employees Retirement System board has approved the addition of a new asset class to cover investments that fall outside of the traditional asset classes set out in the fund's investment strategy.
The “opportunistic” asset class will be established with a target allocation of 1%, or US$500m (e387.7m), of the US$59bn (e45.7bn) fund’s defined benefit pension plan with a 2% cap.
Investments considered under the opportunistic asset class will include hedge funds, commodities, derivatives, currency and long/short equity.
“[The opportunistic asset class] is a solution that permits us to test the waters on certain opportunistic investments in a sort of ‘incubator’ environment,” a spokesperson explained.
“As we gain experience and investments grow, it presents us with the opportunity to merge them into existing asset classes.”
OPERS said the limited size of the asset class was a “risk control mechanism”. For diversification reasons, each program would be limited to a maximum of US$100m, with a target initial funding of US$25m to US$50m.
“The opportunistic asset class will provide a mechanism for proactively identifying, utilising, and validating newer investments that have the potential to add to the long-term return of the plan and increase investment flexibility across market environments,” the Board said in its policy paper.
“Programs that are approved for the opportunistic class will have a finite trial and evaluation period, at the end of which staff will recommend that the program be graduated to a dedicated portion of the portfolio, or terminated.”
OPERS’ consultant Ennis Knupp Associates recommended the Board adopt the new asset class, noting the Illinois State Universities Retirement System’s (SURS) success with its Opportunity Fund, which has served a similar purpose since its inception.
“The SURS Opportunity has experienced a return slightly in excess of benchmark, meaning the fund has been more than adequately compensated on these investments,” Ennis Knupp Associates consultants Brady O’Connell and Richard Ennis wrote in their recommendation.
“At the same time, the Opportunity Fund has provided SURS with an effective means of sticking its toe in the water, so to speak, with respect to profitable new strategies and unseasoned investment managers.”
Current asset allocation stands at 47.1% US equity, 23.9% global bonds, 21.6% non-US equity, 5.6% real estate, 1.2% operating cash and 0.6% private equity.
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