Ohio Pension Systems Report Robust Returns for Fiscal 2021

Asset allocation for the six plans has shifted toward alts and away from US equities over the past decade.

Ohio’s six public retirement plans reported investment returns ranging from 26.7% to 34.4% for the fiscal year ended June 30, according to a report by financial consultant RVK Inc.

The Public Employees Retirement System Defined Benefit Pension Plan (PERS DB) returned 26.7%; the Public Employees Retirement System health care trust (PERS HC 115) gained 26.9%; the School Employees Retirement System (SERS) was up 27.5%; the Ohio Police & Fire Pension Fund (OP&F) increased 28.5%; the State Teachers Retirement System (STRS) earned 29.3%; and the Highway Patrol Retirement System (HPRS) reported the highest return at 34.4%.

And for the first two quarters of calendar year 2021, returns for the Ohio pension plans ranged from 8.79% to 11.47%.

“Optimism stemming from reopening efforts, lifted mask mandates, and a proposed bipartisan infrastructure spending bill in the US was balanced with concerns regarding emerging variants of the coronavirus and increasing inflation,” said the report, which cited strong global equity markets as providing robust second quarter gains, led by US equity markets. Joining equity markets in positive territory were commodities and real estate investment trusts (REITs).

The report said the dispersion in results among Ohio’s retirement plans is caused by differences in asset allocation, asset class structure, and investment manager selection. Each plan has its own long-term investment objectives and therefore different asset allocations. Investment execution approaches also vary as it relates to active versus passive and internal versus external management.

During the first half of 2021, five out of six plans outperformed or kept pace with their benchmarks, and overall all six plans showed signs of increasingly diversified, institutional-quality portfolios, according to the report. Exposures to public equities make up the largest component for each plan; however, within that component, allocations to US equities have generally declined over the past 10 years while allocations to alternatives, particularly hedge funds and private equity, have increased.

STRS currently has the largest allocation to US equity at 28.4%, while OP&F has the smallest allocation to domestic equity at 22.1%. None of the six plans have a higher exposure to US equities than the peer median of 28.7%, and PERS (HC 115) has the largest fixed-income allocation at 33.5%. The average total allocation to hedge funds, private equity, and other alternatives among the six plans is 17.3%. Compared with peer median allocations, four of the six plans have higher strategic exposures to international equities than the peer median of 16.8%, while five of six plans have higher allocations to real estate than the peer median of 6.4%.

Five of the six plans’ US equity portfolios outperformed their respective benchmarks during the first half of 2021, while two of six plans outperformed the peer median over the same period. “Absolute performance over the past 10 years has been strong, with all six plans outperforming the peer median over all trailing periods three years and longer,” the report said.

The international equity portfolios for all six plans outperformed their respective benchmarks during the first two quarters of 2021, with STRS and OP&F reporting the highest performance during the period with returns of 11.4% each. All six funds outperformed their respective international equity benchmarks over the 10-year period.

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