Oklahoma Teachers’ Retirement System, Oklahoma City, hired Advisory Research, Epoch Investment Partners, Wasatch Advisors and Wellington Management to run a new 3% allocation to international small-cap equities at its Thursday meeting, confirmed James Wilbanks, executive director of the $9.5 billion system.
Wells Capital Management was the only other finalist.
Funding came from the system’s 15% allocation to international equities, Mr. Wilbanks said. The new small-cap allocation, expected to total $250 million to $300 million, will be evenly split among the four managers, he said.
The remaining 12% allocation to international equities also will be evenly split among existing value managers Causeway Capital Management, Brandes Investment Partners and Thornburg Investment Management, Mr. Wilbanks said. Prior to the reallocation, Causeway ran $293 million; Brandes, $419 million; and Thornburg, $283 million.
The system also approved terminating Capital Guardian, which ran $353 million in international growth equities, for performance, Mr. Wilbanks said. CapGuardian was first put “on notice” in March for performance. CapGuardian spokesman Chuck Freadhoff said the company does not “discuss our clients or their decisions.”
Separately, Mr. Wilbanks said, strong investment returns and pension reform legislation enacted in May could put the system on a path to 100% solvency in 22 years. The changes improved the system’s funding ratio to 56.7% from 47.9%, Mr. Wilbanks confirmed.
The system had a one-year return of 23.5% on its investments for the fiscal year ended June 30.
A new pension reform law also reduced the projected liability by requiring cost-of-living adjustments at state funds to be fully funded, rather than the previous practice of funding them out of plan assets. Another new law increased the retirement age for most new public teachers hired after Nov. 1, to 65 from 62, and adjusted the “rule of 90” that allowed teachers to retire once their age plus their number of years of employment totaled 90 or more. Teachers retiring under the rule of 90 now must wait at least until age 60 to receive full benefits.
“The funded ratio moving up by almost nine percentage points is certainly good news,” Mr. Wilbanks said, adding that the full solvency is now within the system’s reach. “Last year, our funding period was infinity.”