Oklahoma pension public fund analysis 2011/08 |
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Oklahoma State Pension Commission Public Fund Analysis August 24, 2011 Allan Martin, Partner Don Stracke, CFA, Senior Consultant Tony Ferrara, Senior Analyst 2 Greenwich Associates Universe • A survey of 209 public funds over $250 million was done as of December 31, 2010 to compare asset allocations of various public funds. • The breakdown of the participants by asset size are below: 3 Asset Allocation vs. Greenwich Associates Universe • Asset allocations are compared with the 209 Public Fund defined benefit plans surveyed in the 2010 Greenwich Associates universe (weighted averages in US dollars). • The OK Teachers, PERS, Judges, and Wildlife plans have less exposure to alternatives in comparison to like size Public Funds surveyed. 4 Asset Allocation Differences vs. Greenwich Associates Universe Funded Ratios 5 Source: 2010 Greenwich Associates Survey • All Plans rank well in terms of funded ratio, except for OK Teachers and Firefighters which are in the lower quartile of their respective ranges. • Investment returns have improved but we have yet to see an effect on funded ratios as actuarial losses from 2008 and early 2009 are still being smoothed out. 6 Investment Assumption • The average investment assumption for responding funds is 7.7 percent. Approximately 23 percent of responding funds have reduced this assumption in the past two years, and an additional 15 percent plan to do so in two years. • Investment return assumptions: • 8.0% for OK Teachers plan, 7.5% for all other plans. Source: 2011 NCPERS Public Fund Study 7 • A survey of 72 public funds was done as of December 31, 2010 asking about various topical issues facing public funds. • The demographics of the participants are below: RV Kuhns Public Fund Survey (SACRS) 8 Survey Results What, if any, changes has the Plan made to its securities lending program in the last 2 years? # of Funds 3 Increase the program 19 Decrease the program 1 Terminate the program 37 No changes Total 60 2) Board Delegation a) Does the Board delegate any investment decisions to Staff? Yes No Total 37 20 57 65% 35% 100% b) If so, which of the following decisions have been delegated? # of Responses 4 Strategic Asset Allocation 19 Tactical Movements 37 Rebalancing 11 Manager Selection 9 Manager Termination 10 Security Selection in a Passive Internal Portfolio 10 Security Selection in an Active Internal Portfolio 3) Asset Liability How often does your defined benefit plan conduct Asset Liability Studies? # of Funds 6 Every year 18 Every 1-3 years 27 Every 3-5 years 3 Every 5+ years Total 54 1) Securities Lending # of Funds % of Funds Source: Public Fund Universe Analysis - SACRS. 9 4) Current Management Yes No Total 23 35 58 40% 60% 100% b) If yes, which of the following parties are engaged in the active management of currency? # of Responses 3 Internal Staff 17 External Asset Manager (stocks, bonds or otherw ise) 5 External Standalone Currency Manager Some funds marked more than one box. # of Responses 12 0-25% 4 26-50% 3 51-75% 3 76-100% # of Responses 11 0-25% 1 26-50% 1 51-75% 2 76-100% 5) Emerging Markets a) Has the Plan increased its allocation of assets to emerging markets in the last 2 years? Yes No Total 29 28 57 51% 49% 100% b) Does the Plan intend to increase its allocation of assets to emerging markets in the next 2 years? Yes No Total 23 28 51 45% 55% 100% a) Does the Plan (or its managers) actively manage currency (including w ithin international stock or bond mandates, standalone currency managers, or otherwise)? c) If applicable, what percentage of the Plan's international equity allocation w ould you consider the currency positions to be actively managed? d) If applicable, w hat percentage of the Plan's international bond allocation w ould you consider the currency positions to be actively managed? # of Funds % of Funds # of Funds % of Funds # of Funds % of Funds Survey Results Source: Public Fund Universe Analysis - SACRS. 10 Legislative Updates • The proposals from each state range from drastic overhauls, such as switching from defined benefit to defined contribution plans, to more incremental changes such as increasing employee contribution rates, raising the retirement age and changing benefit calculations. • In addition, many of the states that fell short on contributions to their retirement systems will need to show discipline in paying their annual bill as their budgets continue to recover. • Some recent legislative changes to benefits that have been made by the State of Oklahoma in 2011: – The normal retirement criteria for teachers and state employees was raised. Also, requires provision of a funding source to fund future COLAs. The required COLA funding provision is estimated to reduce OK PERS and Teachers unfunded by liabilities by 30%. • Legislation that has been introduced in Oklahoma includes a proposal to replace the Oklahoma Teachers Retirement System defined benefit plan with a defined contribution plan and to replace it with a system that offers new employees a choice between a defined contribution plan and a combined plan with defined benefit and defined contribution components, known as “The New Education Employees' Hybrid Retirement System. Source: House Media Office, “Lawmakers to Consider Major Pension Reforms,” February 16, 2011 11 Sector Index 2008 2009 2010 Jan Feb Mar QTR 1 Apr May Jun QTR 2 July August 2011 Emerging FI BC Emerging ($US) -14.8% 34.2% 12.8% -0.3% 0.5% 1.4% 1.6% 1.4% 1.3% 0.7% 3.4% 2.0% 0.4% 7.4% Muni Bonds BC Muni (unadj) -2.5% 12.9% 2.4% -0.7% 1.6% -0.3% 0.5% 1.8% 1.7% 0.4% 3.9% 1.0% 1.5% 7.0% Global FI Citigroup WGBI 10.9% 2.6% 5.2% -0.0% 0.4% 0.3% 0.7% 3.2% -0.1% 0.2% 3.3% 2.3% -0.3% 6.1% Core FI BC Aggregate 5.2% 5.9% 6.5% 0.1% 0.3% 0.1% 0.4% 1.3% 1.3% -0.3% 2.3% 1.6% 0.7% 5.1% High Yield BC HY -26.2% 58.2% 15.1% 2.2% 1.3% 0.3% 3.9% 1.6% 0.5% -1.0% 1.1% 1.2% -1.9% 4.2% REITS Wilshire REIT -39.2% 28.6% 28.6% 3.5% 4.6% -1.4% 6.7% 5.8% 1.6% -3.4% 3.9% 1.8% -12.4% -1.2% Balanced Diversified* -26.9% 24.8% 14.4% 1.3% 2.5% 0.2% 3.9% 2.9% -0.6% -1.3% 1.0% -0.6% -5.5% -1.4% LC Growth R1000 Growth -38.4% 37.2% 16.7% 2.5% 3.3% 0.1% 6.0% 3.4% -1.1% -1.4% 0.8% -1.0% -7.4% -2.1% S&P 500 S&P 500 -37.0% 26.5% 15.1% 2.4% 3.4% 0.0% 5.9% 3.0% -1.1% -1.7% 0.1% -2.0% -7.2% -3.6% Commodities DJ UBS Commodity -35.7% 18.9% 16.8% 1.0% 1.3% 2.1% 4.4% 3.5% -5.1% -5.0% -6.7% 3.0% -4.1% -3.8% Large Cap Russell 1000 -37.6% 28.4% 16.1% 2.4% 3.5% 0.3% 6.2% 3.0% -1.1% -1.8% 0.1% -2.2% -7.6% -3.9% LC Value R1000 Value -36.8% 19.7% 15.5% 2.3% 3.7% 0.4% 6.5% 2.7% -1.1% -2.1% -0.5% -3.3% -7.7% -5.6% Intl. Dev. EAFE (net) -43.4% 31.8% 7.8% 2.4% 3.3% -2.2% 3.4% 6.0% -3.0% -1.3% 1.6% -1.6% -9.8% -6.8% SMid Cap R2500 -36.8% 34.4% 26.7% 1.3% 4.9% 2.3% 8.7% 2.9% -1.2% -2.2% -0.6% -3.8% -10.4% -6.9% SC Growth R2000 Growth -38.5% 34.5% 29.1% -0.6% 5.9% 3.8% 9.2% 3.6% -2.0% -2.1% -0.6% -3.9% -10.9% -7.0% Intl. Emerging EM (net) -53.3% 78.5% 18.9% -2.7% -0.9% 5.9% 2.1% 3.1% -2.6% -1.5% -1.1% -0.4% -8.4% -8.1% Small Cap Russell 2000 -33.8% 27.2% 26.9% -0.3% 5.5% 2.6% 7.9% 2.6% -1.9% -2.3% -1.6% -3.6% -10.3% -8.2% SC Value R2000 Value -28.9% 20.6% 24.5% 0.1% 5.1% 1.4% 6.6% 1.6% -1.8% -2.5% -2.7% -3.3% -9.8% -9.5% * 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITS PERFORMANCE THROUGH 8/5/2011 8/5/2011 Market Update: As of August 5, 2011 Sources: Lehman Live, Bloomberg, Wilshire 12 Market Environment – Yield Curve 12/31/2010 7/29/2011 8/5/2011 6/30/2011 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 15 yr 20 yr US Treasury Yield Curves 8/5/2011 13 8/5/2011 S&P 500 – 2010-Current (midday, August 8th) 950 1000 1050 1100 1150 1200 1250 1300 1350 1400 -15% Current sell-off similar to 2010 market decline driven by European peripheral country Debt crisis, and before announcement of QE2 -16% • Securitized/sub-prime credit crisis • Major bank failure (Lehman) served as catalyst • Major liquidity squeeze – Over-leveraged financials/hedge funds – Short-term lending frozen (TED spread peaked at 467 bps) – Flight to quality = Treasuries • S&P 500 P-E (trailing) = 17.2 – VIX peaked at 80 • Optimism priced in across markets leading into crisis • Response to crisis – QE1 followed by QE2 • Developed sovereign credit concerns • Sovereign debt concerns (incl. US downgrade) and economic growth declines catalyze sell-off • Less leverage across system today – Flight to quality = Treasuries and gold – Reasonable liquidity and tighter money market standards – TED spread stable at 26 bps • S&P 500 P-E (trailing) = 14.7 – VIX at 40 and climbing • Optimism priced into corporate earnings – But growth and inflation expectations are tepid • Response to deteriorating economic fundamentals/sell-off - QE3 – QEn? Evolving Crises: 2008 vs. Current Landscape 2008 2011 14 8/5/2011
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Title | Oklahoma pension public fund analysis 2011/08 |
OkDocs Class# | P920.3 P976f/c 2011 |
Digital Format | PDF, Adobe Reader required |
ODL electronic copy | Downloaded from agency website: http://www.ok-pension.state.ok.us/reports/public_fnd/ok_pension_public_fund_analysis_2011_08.pdf |
Rights and Permissions | This Oklahoma state government publication is provided for educational purposes under U.S. copyright law. Other usage requires permission of copyright holders. |
Language | English |
Full text | Oklahoma State Pension Commission Public Fund Analysis August 24, 2011 Allan Martin, Partner Don Stracke, CFA, Senior Consultant Tony Ferrara, Senior Analyst 2 Greenwich Associates Universe • A survey of 209 public funds over $250 million was done as of December 31, 2010 to compare asset allocations of various public funds. • The breakdown of the participants by asset size are below: 3 Asset Allocation vs. Greenwich Associates Universe • Asset allocations are compared with the 209 Public Fund defined benefit plans surveyed in the 2010 Greenwich Associates universe (weighted averages in US dollars). • The OK Teachers, PERS, Judges, and Wildlife plans have less exposure to alternatives in comparison to like size Public Funds surveyed. 4 Asset Allocation Differences vs. Greenwich Associates Universe Funded Ratios 5 Source: 2010 Greenwich Associates Survey • All Plans rank well in terms of funded ratio, except for OK Teachers and Firefighters which are in the lower quartile of their respective ranges. • Investment returns have improved but we have yet to see an effect on funded ratios as actuarial losses from 2008 and early 2009 are still being smoothed out. 6 Investment Assumption • The average investment assumption for responding funds is 7.7 percent. Approximately 23 percent of responding funds have reduced this assumption in the past two years, and an additional 15 percent plan to do so in two years. • Investment return assumptions: • 8.0% for OK Teachers plan, 7.5% for all other plans. Source: 2011 NCPERS Public Fund Study 7 • A survey of 72 public funds was done as of December 31, 2010 asking about various topical issues facing public funds. • The demographics of the participants are below: RV Kuhns Public Fund Survey (SACRS) 8 Survey Results What, if any, changes has the Plan made to its securities lending program in the last 2 years? # of Funds 3 Increase the program 19 Decrease the program 1 Terminate the program 37 No changes Total 60 2) Board Delegation a) Does the Board delegate any investment decisions to Staff? Yes No Total 37 20 57 65% 35% 100% b) If so, which of the following decisions have been delegated? # of Responses 4 Strategic Asset Allocation 19 Tactical Movements 37 Rebalancing 11 Manager Selection 9 Manager Termination 10 Security Selection in a Passive Internal Portfolio 10 Security Selection in an Active Internal Portfolio 3) Asset Liability How often does your defined benefit plan conduct Asset Liability Studies? # of Funds 6 Every year 18 Every 1-3 years 27 Every 3-5 years 3 Every 5+ years Total 54 1) Securities Lending # of Funds % of Funds Source: Public Fund Universe Analysis - SACRS. 9 4) Current Management Yes No Total 23 35 58 40% 60% 100% b) If yes, which of the following parties are engaged in the active management of currency? # of Responses 3 Internal Staff 17 External Asset Manager (stocks, bonds or otherw ise) 5 External Standalone Currency Manager Some funds marked more than one box. # of Responses 12 0-25% 4 26-50% 3 51-75% 3 76-100% # of Responses 11 0-25% 1 26-50% 1 51-75% 2 76-100% 5) Emerging Markets a) Has the Plan increased its allocation of assets to emerging markets in the last 2 years? Yes No Total 29 28 57 51% 49% 100% b) Does the Plan intend to increase its allocation of assets to emerging markets in the next 2 years? Yes No Total 23 28 51 45% 55% 100% a) Does the Plan (or its managers) actively manage currency (including w ithin international stock or bond mandates, standalone currency managers, or otherwise)? c) If applicable, what percentage of the Plan's international equity allocation w ould you consider the currency positions to be actively managed? d) If applicable, w hat percentage of the Plan's international bond allocation w ould you consider the currency positions to be actively managed? # of Funds % of Funds # of Funds % of Funds # of Funds % of Funds Survey Results Source: Public Fund Universe Analysis - SACRS. 10 Legislative Updates • The proposals from each state range from drastic overhauls, such as switching from defined benefit to defined contribution plans, to more incremental changes such as increasing employee contribution rates, raising the retirement age and changing benefit calculations. • In addition, many of the states that fell short on contributions to their retirement systems will need to show discipline in paying their annual bill as their budgets continue to recover. • Some recent legislative changes to benefits that have been made by the State of Oklahoma in 2011: – The normal retirement criteria for teachers and state employees was raised. Also, requires provision of a funding source to fund future COLAs. The required COLA funding provision is estimated to reduce OK PERS and Teachers unfunded by liabilities by 30%. • Legislation that has been introduced in Oklahoma includes a proposal to replace the Oklahoma Teachers Retirement System defined benefit plan with a defined contribution plan and to replace it with a system that offers new employees a choice between a defined contribution plan and a combined plan with defined benefit and defined contribution components, known as “The New Education Employees' Hybrid Retirement System. Source: House Media Office, “Lawmakers to Consider Major Pension Reforms,” February 16, 2011 11 Sector Index 2008 2009 2010 Jan Feb Mar QTR 1 Apr May Jun QTR 2 July August 2011 Emerging FI BC Emerging ($US) -14.8% 34.2% 12.8% -0.3% 0.5% 1.4% 1.6% 1.4% 1.3% 0.7% 3.4% 2.0% 0.4% 7.4% Muni Bonds BC Muni (unadj) -2.5% 12.9% 2.4% -0.7% 1.6% -0.3% 0.5% 1.8% 1.7% 0.4% 3.9% 1.0% 1.5% 7.0% Global FI Citigroup WGBI 10.9% 2.6% 5.2% -0.0% 0.4% 0.3% 0.7% 3.2% -0.1% 0.2% 3.3% 2.3% -0.3% 6.1% Core FI BC Aggregate 5.2% 5.9% 6.5% 0.1% 0.3% 0.1% 0.4% 1.3% 1.3% -0.3% 2.3% 1.6% 0.7% 5.1% High Yield BC HY -26.2% 58.2% 15.1% 2.2% 1.3% 0.3% 3.9% 1.6% 0.5% -1.0% 1.1% 1.2% -1.9% 4.2% REITS Wilshire REIT -39.2% 28.6% 28.6% 3.5% 4.6% -1.4% 6.7% 5.8% 1.6% -3.4% 3.9% 1.8% -12.4% -1.2% Balanced Diversified* -26.9% 24.8% 14.4% 1.3% 2.5% 0.2% 3.9% 2.9% -0.6% -1.3% 1.0% -0.6% -5.5% -1.4% LC Growth R1000 Growth -38.4% 37.2% 16.7% 2.5% 3.3% 0.1% 6.0% 3.4% -1.1% -1.4% 0.8% -1.0% -7.4% -2.1% S&P 500 S&P 500 -37.0% 26.5% 15.1% 2.4% 3.4% 0.0% 5.9% 3.0% -1.1% -1.7% 0.1% -2.0% -7.2% -3.6% Commodities DJ UBS Commodity -35.7% 18.9% 16.8% 1.0% 1.3% 2.1% 4.4% 3.5% -5.1% -5.0% -6.7% 3.0% -4.1% -3.8% Large Cap Russell 1000 -37.6% 28.4% 16.1% 2.4% 3.5% 0.3% 6.2% 3.0% -1.1% -1.8% 0.1% -2.2% -7.6% -3.9% LC Value R1000 Value -36.8% 19.7% 15.5% 2.3% 3.7% 0.4% 6.5% 2.7% -1.1% -2.1% -0.5% -3.3% -7.7% -5.6% Intl. Dev. EAFE (net) -43.4% 31.8% 7.8% 2.4% 3.3% -2.2% 3.4% 6.0% -3.0% -1.3% 1.6% -1.6% -9.8% -6.8% SMid Cap R2500 -36.8% 34.4% 26.7% 1.3% 4.9% 2.3% 8.7% 2.9% -1.2% -2.2% -0.6% -3.8% -10.4% -6.9% SC Growth R2000 Growth -38.5% 34.5% 29.1% -0.6% 5.9% 3.8% 9.2% 3.6% -2.0% -2.1% -0.6% -3.9% -10.9% -7.0% Intl. Emerging EM (net) -53.3% 78.5% 18.9% -2.7% -0.9% 5.9% 2.1% 3.1% -2.6% -1.5% -1.1% -0.4% -8.4% -8.1% Small Cap Russell 2000 -33.8% 27.2% 26.9% -0.3% 5.5% 2.6% 7.9% 2.6% -1.9% -2.3% -1.6% -3.6% -10.3% -8.2% SC Value R2000 Value -28.9% 20.6% 24.5% 0.1% 5.1% 1.4% 6.6% 1.6% -1.8% -2.5% -2.7% -3.3% -9.8% -9.5% * 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITS PERFORMANCE THROUGH 8/5/2011 8/5/2011 Market Update: As of August 5, 2011 Sources: Lehman Live, Bloomberg, Wilshire 12 Market Environment – Yield Curve 12/31/2010 7/29/2011 8/5/2011 6/30/2011 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 15 yr 20 yr US Treasury Yield Curves 8/5/2011 13 8/5/2011 S&P 500 – 2010-Current (midday, August 8th) 950 1000 1050 1100 1150 1200 1250 1300 1350 1400 -15% Current sell-off similar to 2010 market decline driven by European peripheral country Debt crisis, and before announcement of QE2 -16% • Securitized/sub-prime credit crisis • Major bank failure (Lehman) served as catalyst • Major liquidity squeeze – Over-leveraged financials/hedge funds – Short-term lending frozen (TED spread peaked at 467 bps) – Flight to quality = Treasuries • S&P 500 P-E (trailing) = 17.2 – VIX peaked at 80 • Optimism priced in across markets leading into crisis • Response to crisis – QE1 followed by QE2 • Developed sovereign credit concerns • Sovereign debt concerns (incl. US downgrade) and economic growth declines catalyze sell-off • Less leverage across system today – Flight to quality = Treasuries and gold – Reasonable liquidity and tighter money market standards – TED spread stable at 26 bps • S&P 500 P-E (trailing) = 14.7 – VIX at 40 and climbing • Optimism priced into corporate earnings – But growth and inflation expectations are tepid • Response to deteriorating economic fundamentals/sell-off - QE3 – QEn? Evolving Crises: 2008 vs. Current Landscape 2008 2011 14 8/5/2011 |
Date created | 2011-09-07 |
Date modified | 2011-10-27 |
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