A Penchant for Equities and Active Investing

Molly Murphy

Chief Investment Officer
Orange County Employees Retirement System

Molly Murphy: A Penchant for Equities and Active Investing

Since her 2017 arrival, the Orange County Employees Retirement System CIO has shifted more into stocks, moved the stock portfolio away from its index orientation, and earned good returns.

A conservative, long equity position has served the Orange County Employees Retirement System (OCERS) well for the past quarter-century. When Molly Murphy came aboard in June 2017, she refined it to increase the allocation to stocks and also to expand active management. And she has deepened the plan’s already strong commitment to diversity.

Her investment results are solid, logging 7.8% annually over the past three years. Last year, the portfolio returned 11.4%, net of fees. “Historically,” she said, “OCERS performs best when protecting capital and lags when markets are propelled by a strong momentum factor.” 

Murphy, who has moved the equity portion of the fund’s holdings to 60% from 45%, noted that OCERS’s “focus on risk-adjusted returns adds up over time and builds that cushion over our 7% targeted rate of return.” Some say the fund has a value bent, a style that has enjoyed a resurgence lately, but Murphy disagrees that value is OCERS’s guiding credo. “I would define us as opportunistic rather than bound by a value orientation,” she said.

Of course, she always seeks to buy at a good price. “We are a style neutral portfolio from the top down across all asset classes,” she indicated. The exception is private equity, which has a growth predilection. 

When Murphy arrived at OCERS (assets: $19.3 billion), the majority of the portfolio’s public equity value was in index funds. She adjusted that mixture, with a transition into more active investing. “Active has been our friend,” she said, although she acknowledges that indexes have done very well over the past year owing to the big tech leaders.

The active-passive ratio has been moving toward active in the public bond portfolio as well, boosting relative performance appreciably. In fact, all OCERS’s public markets composite portfolios produced significant alpha in 2020, led by non-US equity, which added 5.50 percentage points.

Murphy came to OCERS from Mercy Health in Cincinnati, where she served as the health system’s first chief investment officer. She previously held positions at Seasongood Asset Management, Fifth Third Asset Management, and Fidelity Investments.

At OCERS, building the right team is important. Murphy said, “Our investment team is very diverse, and we work hard on inclusion to ensure that we retain our talent.” Her approach is not to use a prescriptive approach to hiring. Rather, she said, “We simply look for the best person who is most characteristic of the role. OCERS is fortunate to be able to recruit to a highly desirable location that naturally attracts diversity.”

Her staff is split 50-50 between genders. Some two-thirds of the investment professionals are people of color, and more than half of the team was born or raised outside the US. In addition, the staff includes native speakers from Sweden, China, Vietnam, India, and Saudi Arabia.

And this, Murphy said, allows “us to have a very global perspective, and that blend of lived experiences translates into strong, internal debate and a unique pipeline of investment ideas.”

Larry Light