Oregon Investment Council was a victim of its investment success.
The council's investment portfolio had grown so rapidly and become so complex that operational and risk management problems put its long-term investment track record in jeopardy.
Now, it is boosting its compliance and risk management systems to better manage its portfolio — and maintain its top-quartile investment track record. Council officials also changed how the investment staff was organized.
The Tigard-based council, which runs the $68.1 billion Salem-based Oregon Public Employees Retirement Fund, hit roadblocks starting in 2011 when an Oregon State Treasury review revealed Oregon's returns could drop because the council lacked the necessary personnel, technology, procedures and risk management to support continued strong performance. Those findings were echoed in a subsequent 2014 review by an outside consultant.
In fact, one consultant that participated in the study for the Oregon State Treasury gave the council's abilities strictly as an asset manager a “would not recommend” rating.
Despite those issues, Oregon Public Employees Retirement Fund's portfolio has performed well. For the year ended Dec. 31, the pension fund earned 2.38%, beating its policy benchmark of 1.57% and placing it in the fifth percentile of the Wilshire Trust Universe Comparison Service of public pension funds with $1 billion or more in assets, according to a year-end 2015 performance report. The pension fund's annualized 9.15% return for the five years and 7.17% return for the 10 years, also ended Dec. 31, also ranked it in the fifth percentile.
But the reviews hit the mark. Council executives hired BlackRock Solutions in 2014 to provide the software and services needed to improve compliance and risk management functions, said John D. Skjervem, chief investment officer, in an interview.
The council also added new positions to help it keep track of its growing portfolio. They include a director of investment operations, a general counsel and chief compliance officer, new audit staff and a corporate governance officer.
And council officials are not done. With the installation of the new systems, they plan in a year or so to bring more of its passively managed equity and debt strategies in-house.
Some $6 billion, about 9% of the pension assets, are managed internally now, compared with $62.1 billion externally managed assets. Including short-term and other non-pension plan assets, the council manages $21.9 billion internally, leaving $67.7 billion managed by outside money managers, said James Sinks, council spokesman, in an e-mail.
Council officials also plan to seek additional funding from the state Legislature to add more investment staff members, Mr. Skjervem said.