Oregon pension chooses to increase fixed income over PE

Council members asked investment staff for more allocation options due to liquidity concerns.

Oregon Investment Council voted to keep the private equity target for the state’s employee retirement fund at its current level, while boosting its target to fixed income.

The decision came as public systems increasingly wrestle with overweighted allocations to private equity, and a changing interest rate environment that has made other asset classes like fixed income more attractive.

Oregon had considered a few options for private equity, including boosting the target for the Oregon Public Employee Retirement Fund by 2.5 percent – which was proposed by the pension’s investment staff in November, affiliate title Buyouts reports.

Instead, OIC chose to keep the fund’s private equity target steady at 20 percent at the 7 December meeting, a level that has been in place since 2021.

Buyouts listened to audio archives of the December meeting and watched a webcast of the November meeting.

“We are a relatively illiquid portfolio compared to some of our peers. My preference as a council member is to lean toward more liquid options,” said Oregon Investment Council chairwoman Cara Samples at the November meeting.

The $91 billion Oregon Public Employee Retirement Fund has perhaps felt the denominator effect more than any other retirement system. As of the end of October, the system’s actual allocation to private equity was 26.9 percent, ranking as its largest asset class.

Some LPs have said they will respond to the higher cost of borrowing by considering changes to their portfolio allocations. According to Jim Pittman, global head of private equity at British Colombia Investment Management, public pension plans may not need to have as high exposure to private asset classes as they had in recent years if they can make decent returns from fixed income.

“With an increasing interest rate environment, we don’t need to have as much private assets per se,” Pittman said. “In that mix, if you can get more bonds, and investment-grade bonds in particular, and other government fixed income paying 2, 3, 4, 5 percent, you can actually dial down the risk of your portfolio slightly.”