Oil Plunge Proves Costly for Indiana Pension

The Indiana Public Retirement System (INPRS) invests almost 7 percent of its portfolio in commodities – a significant stake that trumps most other pension funds’ allocation to the asset class.

So INPRS was hit especially hard by 2014’s drop in oil prices: the value of the fund’s stake in commodities has fallen significantly this fiscal year and is dragging the entire portfolio into negative returns, according to INPRS.

More from the Indiana Business Journal:

The Indiana Public Retirement System has 6.8 percent of its $24 billion defined-benefit portfolio invested in commodities, a stake that fell 33 percent in the fiscal year to date, INPRS reported to its board of trustees this month.

Commodities helped drag the entire fund into negative territory, dropping 1.22 percent for the period of July 1 through Jan. 31.

[…]

While commodities are one of INPRS’ smallest asset classes, the allocation is heavier than in most pension funds.

“Not that many public pension funds have a material amount of assets committed to commodities,” said Keith Brainard, NASRA’s research director.

The pension system, which oversees multiple public-employee and teachers’ funds, changed its investing strategy in 2012 and began allocating money to various asset classes that are supposed to do well under different economic scenarios.

The idea, called “risk parity,” is to eliminate wide swings in performance, even if it means forgoing the benefits of a bull market.

The result is a portfolio that’s heavy on bonds, representing about 32 percent, and includes private equity, real estate and hedge funds along with commodities.

INPRS’ outside investment adviser, Seattle-based Wurts & Associates, thinks the commodities portfolio will do well in the case of a growing economy, or rising inflation.

INPRS has a “reasonable” amount of commodities in the portfolio, and the impact on the fund “is not that egregious,” Chief Investment Officer David Cooper said during the March 6 board meeting.

The portfolio is closely aligned with a blend of the two major commodity indexes, of which oil is a major component.

INPRS asset allocation breaks down as follows: 32 percent stocks, 22 percent bonds, 13 percent private equity, 10 percent risk parity, 8 percent hedge funds, 8 percent real estate, 7 percent commodities.

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