SALEM, Ore. - Members of the Oregon Investment Council are about to start getting detailed information about how the state's $33 billion pension plan has performed and how it might do in the future in a new, easier-to-read format.
Working with longtime consultant Frank Russell Co., Tacoma, Wash., officials at the Oregon Public Employees' Retirement Fund have devised a new model for reporting financial and risk information to council members.
John Ilkiw, director of global consulting practices at Frank Russell, said the so-called "Four-Level Performance Report" gives a broad overview of the overall fund's performance and also allows council members to drill down to see how individual managers have done.
This is all information that has been available in the past from Oregon's custodian, State Street Bank & Trust Co., Boston. However, Russell will take that information and put it in a new format, Mr. Ilkiw said.
"The material they (the investment council members) were getting was zillions of numbers, but not in a format they could understand," Mr. Ilkiw said. "This report is like a consolidated profit-and-loss sheet that a corporate board of directors would use. It makes order out of the chaos of numbers."
Covering both needs
Some members of the investment council have said they favor delegating oversight of the nitty-gritty to the investment staff; in other words, not getting bogged down in details. What they want is the view of the fund from 30,000 feet, as Mr. Ilkiw put it. They asked Russell to come up with a one-page summary containing the most relevant bits of information, Mr. Ilkiw said.
But other council members want to see performance attribution all the way down to the individual manager level. They believe their fiduciary responsibility extends to personally examining performance throughout the fund.
The four-level reporting format fulfills both desires, Mr. Ilkiw said. Starting at the top and working down, the report looks at the total fund return across all assets, the fund return excluding illiquid assets like alternatives and real estate, returns by strategy, and finally manager portfolio returns.
Using those numbers, the report then seeks to answer a series of questions about whether the returns made the fund larger, how much the fund was rewarded for taking risk, and how much the fund benefited from active management.
"It's been my observation in 30 years in this business that trustees and governing fiduciaries are absolutely overwhelmed by information or data with respect to how the fund is operating," Mr. Ilkiw said. "They ask a thousand questions and they get a thousand data points. They're so close to the canvas they can't see the picture being painted."
None of the information in the new four-level report is new; it's merely a repackaging of the old information into a more accessible format, Mr. Ilkiw said.
But there will be a twist, and that will involve taking historical information and using it to look ahead.
Looking forward
"Currently the reports look back at risk and returns," Mr. Ilkiw said. "The Oregon Investment Council and other clients are starting to say `We have a good understanding of how the fund has performed in the past; can we look at risk going forward relative to our expectations?' "
Ron Schmitz, Oregon's new director of investments, said what the council members want is a way to budget risk, something other pension funds have embraced in recent years as computer models became better able to calculate portfoliowide risk and how that risk might affect the portfolio in the future, given certain market conditions.
The Oregon plan is working with Russell to find a third-party provider of value at risk information, which would be included in the new four-level report. One possible source for that information is State Street itself, but Mr. Schmitz said Oregon might hire an independent firm. A decision is expected sometime in May, and the new reports should be in investment council members' hands in late May or June.
