Is OPERF really beating the market? Or is the Treasury just hiding risk?

February 15, 2023

At the House Committee on Emergency Management, General Government, and Veterans on 2/9/2023, Treasurer Read announced that the Oregon Employee Retirement Fund (OPERF) was the “#1 performing fund in fiscal year 2022” and “over the past 20 years.”


This statement poses a question: How did OPERF suddenly beat the market with such “exceptional results?”


As reported in the industry publication, Pensions and Investments (1), OPERF did better while other state funds had negative returns, not because of doing better in publicly traded equities (stocks), which lost money even for OPERF (-13.3%) -- but because of its relative overweight of high risk “alternative” funds. 60% of OPERF is now held through alternative private contracts, such as investments in private equity, hedge funds, commodities, and real estate / infrastructure, with only around a quarter (2) in lower risk publicly traded equities. This level of high risk private investment is almost twice as high as most other state pension plans (34%%) (3)


Importantly, the value of these private investments and their returns is set, not by the market, but by “expert appraisals that may differ meaningfully from the true market value. (4) ” Because of private contract fee structures and incentives, such appraisals tend to overstate value and respond only slowly to market trends. For the 2022 fiscal year, OPERF showed (5) a 29.6% return on real estate, a 24% return for private equity, and 23% return for other real assets, all values set not by the market, but by asset managers who garner their fees based on returns.


Bottom line: While other state pension plans with larger exposures to public equity showed losses as the market dropped, OPERF continued to report inflated values for its large portfolio of protected private investments, inflating its returns, and suddenly making it appear “the #1 performing fund” for fiscal year 2022.


Does this matter to the legislature? Treasury’s latest PERS By the Numbers report (6) (December 2022) projects that OPERF’s funded status will decrease from 86.4% in 2021 to 79.1% in 2022 with the unfunded actuarial liability increasing from 20% to 26.6%.


As the Equable Institute (7) points out in their report “State of Pensions 2022: National Pension Funding Trends,” state pension plans have not recovered to their pre 2008 recession level of 93.8% funding and face a future of “muted returns.” They emphasize that the system remains “fragile” – faced with inflation and geopolitical instability -- and that the threat of legislatures having to face the politically fraught and contentious process of increasing contributions or cutting benefits can only be mitigated by intense risk management.


PERS beneficiary will be glad to hear when the plan does well – although Treasurer Read did not report that six months later, at the end of the calendar year, OPERF reported a yearly total loss of 1.55%. (8)


PERS members will be more reassured when there is an honest and transparent presentation of the obvious risks the plan faces, supported by data, with specific plans to manage those risks. For me, this is not only financial market risk but also includes climate risk, such as was presented to Treasury in November 2022 by the ORTEC climate risk assessment report they commissioned but seem to have ignored for now over a year.


Support HB 2601 to bring an increased level of transparency, accountability, and risk management to our State Treasury. Glossing over the risks that are increasingly well documented in the pension industry is perhaps the greatest risk of all to the future of PERS, its beneficiaries and contributors. We need legislation to make sure that does not happen.


1 https://www.pionline.com/pension-funds/oregon-public-employees-pension-fund-returns-63-strength-private-equity

2 https://www.oregon.gov/treasury/invested-for-oregon/Documents/Invested-for-OR-Performance-and-Holdings/2022/OPERF-12312022.pdf

3 https://crr.bc.edu/wp-content/uploads/2022/11/IB_22-20.pdf

4 https://crr.bc.edu/wp-content/uploads/2022/11/IB_22-20.pdf

5 https://www.pionline.com/pension-funds/oregon-public-employees-pension-fund-returns-63-strength-private-equity

6 https://www.oregon.gov/pers/Documents/General-Information/PERS-by-the-Numbers.pdf

7 https://equable.org/pension-funding-trends-2022/

8 https://www.oregon.gov/treasury/invested-for-oregon/Documents/Invested-for-OR-Performance-and-Holdings/2022/OPERF-12312022.pdf

Oregon Treasury's Net Zero Plan 2024 Report - An Analysis

February 7, 2025
In December 2024, the Oregon Treasury published their Oregon Net Zero Plan 2024 Annual Report . Kudos to Treasurer Read for creating a Net Zero Plan and publishing the 2024 annual report before leaving office. Treasurer Read’s strong statement that climate risk is financial risk is essential context for the report. Divest Oregon published this analysis of the 2024 annual report including the following sections: Transition Readiness Framework/Carbon Intensive Review Manager Activity/Private Investments ESG Integration/Forming Alliances and Engagement Investing in climate-focused funds Proxy Voting Stewardship and Universal Ownership Divest Oregon strongly recommends the following: The Treasury's report should be sent to all PERS beneficiaries and prominently displayed on the Treasury website. Stakeholder input should be solicited during the formulation of Treasury action in this sphere and before the publication of the next plan report.
Oregon waterfall

Press Release: “First-in-the-nation” Pause Act will protect Oregon retirees from private equity’s overexposure to fossil fuels

January 14, 2025
“First-in-the-nation” Pause Act will protect Oregon retirees from private equity’s overexposure to fossil fuels

New Report! A Comparison of US Pension Funds' Net Zero Plans

January 14, 2025
Few public pension fund trustees have adopted a plan to address the risk of climate change to their portfolio. Oregon should be applauded as one of them, yet how does Oregon’s proposed plan compare to the major net zero plans of other US public pension plans? Divest Oregon has just released a comprehensive and detailed Comparison of US Pension Funds' Net Zero Plans Report . It allows the Oregon Treasurer and the Oregon Investment Council (OIC) to see what other fiduciaries are planning, to adopt best practices, and to change OIC policy as needed. Climate change is moving fast, and the report should be used by Oregon PERS and all fiduciaries to move faster in implementing a strong plan.

NEW REPORT: In 2023, 21 Private Equity Fund Holdings Emitted a Gigaton of Carbon Oregon owns 11 of them!

November 13, 2024
The newly released 2024 Private Equity Climate Risks Scorecard & Report by our allies, Private Equity Stakeholder Project, Global Energy Monitor, and Americans for Financial Reform Education Fund, gives us new insight into private equity firms and OST investments in these secret funds. Twenty-one major private equity firms manage $6 trillion in assets – and two-thirds of the energy companies in their portfolios are invested in fossil fuels. Oregon state employees’ pension plan (PERS) invests in 11 of these 21 funds.

Is the Oregon State Treasury Supporting Environmental Racism in the Gulf South?

September 26, 2024
Above: Natural coastal area of the proposed Rio Grande LNG terminal. Credit: Dylan Baddour/ Inside Climate News Below: Artist Rendering of the Rio Grande LNG project (Photo: Business Wire , 11/21/2019)

UC Investments Reaps Big Returns From Index Fund Shunning Fossil Fuels, Tobacco

August 19, 2024
A recent article in Chief Investment Officer reported that the University of California had solid returns mostly stemming from a fund that excludes tobacco and fossil fuel investments: The University of California’s endowment and pension fund each returned more than 12% for the fiscal year ending June 30, boosting the total asset value of the university’s investment portfolio by $16 billion to $180 billion. Some $1.3 billion of that $16 billion gain came from a single S&P 500 index fund—one which excludes tobacco and fossil fuel investments—that provided the portfolio with its single biggest investment gain. We assume the OIC and Treasury would be thrilled by these types of returns, given the drag that private investments are causing to the portfolio returns, and the continuing liquidity problems of private funds. UC invests where they have a strong conviction while fulfilling their fiduciary duty. The two are not mutually exclusive: “This past fiscal year was about investing only in what we fully understand and taking full advantage of low-fee index funds guided by what we call the UC Investments Way,” said UC CIO Jagdeep Singh Bachher in a statement. “It’s about simplicity and leveraging our scale to concentrate on areas where we have strong conviction.” Bachher added that he believes the U.S. and “its resilient economy and thriving innovation ecosystem … is the best place to invest,” and the UC system has backed that up by allocating approximately 75% of its portfolio to domestic investments. We look forward to seeing the OST swiftly shift a significant portion of OPERF to index funds that exclude fossil fuels and to end any consideration of new investments in private funds that are laden with fossil fuel assets, as described in the Treasurer’s Net-Zero Plan. Collectively the country has moved past climate denial. The Oregon Treasury and the Oregon Investment Council should not get mired in solution denial . The solutions for a healthier pension and planet are available now!

How Oregon’s Pension Fund Helps Vladimir Putin’s Gas Gambit

August 6, 2024
A recent Bloomberg article explains that Oregon PERS made critical energy flow to the Putin regime possible, by enabling an LNG terminal. How? A $500 million financial commitment made in 2020 with $209.3 million is still available for investment, even after Treasurer Read said he would “Stand with Ukraine” and OIC agreed to end all Russian investments. This long-term, locked-in commitment of funds is one of reasons Divest Oregon continues to question private investments – especially since they are often laden with risky fossil fuel companies. Private investments comprise over half of the PERS portfolio . Background: The Oregon Treasury committed $500 million to the Stonepeak Infrastructure Fund IV in 2020 . In fact, the Treasury has been investing in Stonepeak Infrastructure Funds since 2012 . The commitment to a private fund is a long-term one. Once that commitment is made, the Treasury can only exit that fund at a steep loss, and once the commitment is made, the Treasury had no say in specific investments by the fund managers. Bloomberg reported that pension funds, including Oregon, enable the largest Russian LNG export terminal to function. Stonepeak invested in Seapeak LLC, which provides ice-class carriers specifically designed to carry Russian LNG from the Arctic. The carriers are only used for this purpose and are essential to the gas terminal. The investment by pension funds enables critical revenue flow to the Putin regime. The Bloomberg article states: The California Public Employees’ Retirement System, known as CalPERS, is one of the investors in Stonepeak’s fund and it said in response to a Bloomberg query that it had already raised concerns with the general partner. ‘We believe that Russian investments pose a material risk to our long-term investment success and have taken actions, consistent with our fiduciary duty, to remove these assets from our portfolio,’ John Myers, chief of Calpers’ office of public affairs, said in a statement. ‘We will continue monitoring events to ensure our partners’ actions are consistent with our investment beliefs.’ The Washington State Investment Board, Oregon Public Employees Retirement Fund, New York State Common Retirement Fund and the Teachers’ Retirement System of the State of Illinois declined to comment. Divest Oregon asked the Oregon Investment Council in one of our many emails to them: Is this a responsible investment, or a material risk? There were no sanctions violated, but does this uphold the pledge to “Stand with Ukraine” made by Treasurer Read and backed by the Council? We also asked: Do the long term risks justify continued new investments in predominantly fossil fuel private funds? We request that the OIC insure that there are NO NEW investments in fossil fuel investments especially in the private investment or bonds/credit markets. Digging the hole deeper makes no sense when you are already over target allocations in these private investments. Image: A Russian ice-breaking LNG Carrier. Source: VCG/Visual China Group/Getty Images

The American Association of University Professors Votes to Divest From Fossil Fuels

July 1, 2024
At the June 15th national-level meeting of the American Association of University Professors (AAUP), delegates overwhelmingly approved a sweeping resolution demanding that state pension boards and other fund managers divest fossil fuels from their funds. AAUP Oregon, the state-level organization of the AAUP, is a member of the Divest Oregon coalition and a leading union voice for divestment in our state. Victor Reyes, AAUP Oregon’s executive director, responded: “Watching the resolution pass with such overwhelming support by AAUP members from across the United States filled me with pride and reinforced the importance of the work we are continuing to do in our state as members of the Divest Oregon coalition. Our members understand that there is no retirement in a destroyed environment, and I feel confident that public support for divesting from fossil fuels can only grow with these recent wins.” Now the resolution goes to the AAUP executive committee for ratification and to direct its implementation.

The Urgency of Now to Shift to Renewables

June 18, 2024
These articles were shared with the members of the Oregon Investment Council in June 2024. When considering the speed of the transition , here are some important data points: Electric Cars are Suddenly Becoming Affordable ( NYTimes Business Section, 6/3/2024) “The E.V. market has hit an inflection point,” said Randy Parker, chief executive of Hyundai Motor America, which will begin producing electric vehicles at a factory in Georgia by the end of the year. “The early adopters have come. They’ve got their cars. Now you’re starting to see us transition to a mass market.” IEA expects global clean energy investment to hit $2 trillion in 2024 ( Reuters , 6/5/2024) The Cleantech Revolution ( Rocky Mountain Institute , 6/2024) The world has moved on to the steep part of the S curve (as shown below), which will sweep us from minimal reliance on renewable energy to minimal dependence on fossil fuel. Last year or this year, we will hit peak fossil fuel demand — the advent of cheap solar and wind and batteries, combined with rapidly developing technologies like heat pumps and EVs, has finally caught up with the surging human demand for energy even as more Asian economies enter periods of rapid growth. (comments by Bill McKibben)

Trump Shakes Down Big Oil for $1 Billion

June 3, 2024
Four days before the start of his New York felony trial, presidential nominee Donald Trump engaged in some major self-soothing activity — shaking down Big Oil for $1 billion in order to help him trash the climate. According to the Washington Post, which broke the story, Trump invited two dozen oil executives to a dinner at Mar-a-Lago. After one executive complained about burdensome environmental regulations issued by the Biden administration, Trump responded with a stunner, telling his guests: You are wealthy enough to raise $1 billion to return me to the White House. That would be a “deal,” he said, because of the costs of taxes and regulation they would avoid thanks to him. He vowed to immediately reverse dozens of environmental rules and policies and stop new ones. Trump said he would: End the freeze on new LNG exports - “you’ll get it the first day”; Auction more Gulf of Mexico oil leases; Allow more drilling in the Alaskan Arctic-“You’ve been waiting on a permit for five years; you’ll get it on Day 1”; Continue to “hate wind” [explaining why he breaks it?]. (According to the New York Times, Trump claims that windmills cause cancer and are driving whales insane). Scrap electric vehicle mandates (although they do not exist). Presumably this means scrapping regulations to reduce auto tailpipe emissions. Trump has earlier promised to end California’s ability to require cleaner cars than federal regulations do. One person involved in the industry said many oil executives wanted Florida Gov. Ron DeSantis or another Republican to challenge Biden. But now that Trump is the nominee, this person said, they are going to embrace his policies and give. Alex Witt, a senior adviser for oil and gas with Climate Power, said Trump’s promise is he will do whatever the oil industry wants if they support him. With Trump, Witt said, “everything has a price.” “They got a great return on their investment during Trump’s first term, and Trump is making it crystal clear that they’re in for an even bigger payout if he’s reelected,” she said.
More Posts
Share by: