{"id":13975,"date":"2025-07-22T17:57:11","date_gmt":"2025-07-22T17:57:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/13975\/"},"modified":"2025-07-22T17:57:11","modified_gmt":"2025-07-22T17:57:11","slug":"5-things-to-know-about-oregon-pers-big-bets-on-private-equity-other-alternative-investments","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/13975\/","title":{"rendered":"5 things to know about Oregon PERS\u2019 big bets on private equity, other \u2018alternative\u2019 investments"},"content":{"rendered":"

Earlier this week, The Oregonian\/OregonLive published a story detailing the state\u2019s distinctly aggressive investment strategy for its public pension fund<\/a>, one that is now heavily skewed toward so-called alternative investments, and more specifically, private equity funds.<\/p>\n

The opaque private partnerships now make up the largest slice of the pension fund\u2019s portfolio. They lock up the pension system\u2019s money for years at a time, making it more vulnerable to a financial downturn. They charge enormous fees. And flagging distributions from the funds in recent years have led to something of a cash crunch for the system, forcing it to sell investments to meet its annual benefit payments.<\/p>\n

Treasury officials remain bullish, saying markets are cyclical and they expect the complex bets they\u2019ve made to pay off and deliver much higher returns than they\u2019d get from a vanilla portfolio of publicly traded stocks and bonds. But other aren\u2019t so sanguine and believe the market has changed in ways that will limit those returns. <\/p>\n

Here are five things to know about that strategy, and what it means for taxpayers:<\/p>\n

Oregon\u2019s big bet: Private equity funds, whose managers typically buy companies, try to fix them up and sell them years later for big profits, now make up 27% of the $97 billion Oregon Public Employees Retirement Fund<\/a>. That\u2019s the largest piece of the investment pie and is nearly triple the 10.4% average allocation of other public pension funds. When including other alternative assets that aren\u2019t publicly traded (real estate, hedge funds, natural resources), the stakes in these partnerships account for almost 60% of Oregon\u2019s pension system\u2019s investments \u2014 double the average allocation of other public plans. One recent study found Oregon had the second highest alternatives allocation among public pension plans nationwide. Such assets aren\u2019t easy to sell and lock up the pension fund\u2019s cash for years at a time.\u00a0 Historically strong returns have lagged in recent years: Oregon was a pioneer in private equity investments when it started making them more than 40 years ago. Historically strong returns from private equity helped keep Oregon\u2019s pension system, which now has a nearly $30 billion long-term deficit, from sliding into a deeper funding hole. But returns have diminished over time as increased competition in the private equity sector has driven up acquisition prices. And after interest rates shot up three years ago, distributions from the funds went into a deep freeze. The slowdown undermined Oregon\u2019s total investment returns at a time when the stock market was booming, and it caused cash flow problems for the system. A funding mismatch? Oregon\u2019s pension fund is a maturing system with an aging cohort of members and a high percentage of its asset base going to pay benefits each year. That\u2019s not inherently a problem. But the fund must pay out $6 billion annually to 166,000 retirees, with costs projected to grow to $8 billion by 2033 and $10 billion a decade later. To meet these obligations while private equity returns lag, managers have sold down publicly traded stocks (now just 17.4% of the portfolio, down from nearly 31% five years ago) and sold $4.5 billion worth of private equity investments at undisclosed discounts to their reported value.Experts are concerned: Three former chairs of the Oregon Investment Council have voiced concerns about the heavy allocation to alternatives, their declining returns, and the liquidity problems they create. Rukaiyah Adams, who chaired the council from 2017 to 2020, called the situation a serious point of actual, not hypothetical, concern that \u201chas to be dealt with directly and immediately.\u201d Other former chairs questioned whether the market fundamentals that once made private equity attractive have permanently shifted, eliminating some of the easier gains of years past.Treasury officials remain optimistic: Oregon Treasury staff acknowledge the headwinds their strategy has faced in the last few years but maintain their bullish outlook. Chief Investment Officer Rex Kim said managers plan to decrease the pace of investing in private equity and other alternative asset classes to bring the fund closer to =internal targets to balance risks, returns and volatility. But he believes the fund is \u201con the right path\u201d and that private equity will still generate premium returns over time. Over the last 10 years, the state\u2019s investments in the sector have achieved average annual returns of 12.7%, a period that includes the recent three-year slump, when annual returns averaged just 3.8%.<\/p>\n

To learn more about Oregon\u2019s investment strategy, and the risks some say it presents, read the full article at OregonLive.com<\/a>. <\/p>\n

Generative AI was used to help summarize reporting from our Monday story<\/a>. These takeaways were reviewed and edited by The Oregonian\/OregonLive.<\/p>\n

\u2014Ted Sickinger<\/a>is a reporter on the investigations team. Reach him at 503-221-8505,tsickinger@oregonian.com<\/a> or @tedsickinger<\/a><\/p>\n

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