Oklahoma Teachers Retirement System

Oklahoma Pension Officials Report Big Improvements in Funding, Liabilities Since 2010

Four years ago, Oklahoma’s state-level pension systems were collectively 58 percent funded. Now, their aggregate funding ratio stands at 74.4 percent, and unfunded liabilities have declined by $6.5 billion.

Pension officials reported the figures to state lawmakers on Wednesday during a House hearing.

More details from the Associated Press:

The improvements reflect the impact of legislation approved by lawmakers in recent years designed to improve the financial health of the systems, including bills passed in 2011 that increased the retirement age of some state employees and required that any retiree cost-of-living raises be fully funded, said state Rep. Randy McDaniel, R-Edmond, author of many pension overhaul bills.

“We’ve been monitoring this for several years,” McDaniel told members of the House Economic Development and Financial Services Committee. “I’m very proud of what Oklahoma has done.”

McDaniel, chairman of the committee, made the comments after officials from the Oklahoma Teachers Retirement System, the Oklahoma Public Employees Retirement System and other major retirement systems outlined their financial conditions.

In 2010, the state pension systems’ unfunded liability — the amount owed to pensioners beyond what the system can afford to pay — was more than $16 billion. The Teacher’s Retirement System was only 48 percent funded and had a $10.4 billion unfunded liability, and the Public Employees Retirement System was 66 percent funded and had $3.3 billion in unfunded liability.

At the time, officials said the pension systems threatened to place financial burdens on the state’s ability to finance road and bridge construction and other capital projects.

“The status quo was not sustainable,” McDaniel said. “Reforms were needed to ensure strength and security.”

Oklahoma’s most aggressive pension changes will be implemented next year, when new hires will be enrolled in a 401(k)-style plan instead of a defined-benefit plan.

A group of public employees are suing the state over the changes.

Oklahoma Teacher’s Fund Hires Six Real Estate Managers

The Oklahoma Teacher’s Retirement System has chosen six real estate managers to handle a combined $300 million worth of non-core investments.

Reported by I&P Real Estate:

The US pension fund will invest in the American Realty Strategic Value Realty Fund, Antheus Realty Partners IV, Dune Real Estate Fund III, GreenOak Real Estate Partners US Fund II, Landmark Real Estate Fund VII and Starwood Opportunity Fund X Global.

The funds were selected on the recommendation of the fund’s consultant, Gregory W Group.

Oklahoma initially planned to invest $50m with each of the six managers.

Landmark, however, could not take the full amount by the time of the board’s approval and was allocated $35m.

The pension fund planned to spread the remaining $15m across the remaining five managers.

However, GreenOak closed its capital raise.

The other four managers will receive $53.7m each.

Antheus Realty Partners IV will focus solely on apartments, while Starwood will invest equally in Europe and the US.

Landmark will buy current limited partnership positions in existing funds on the secondary market.

American Realty will be buying value-add US office, industrial, retail and apartment properties and has raised $240m of capital for the open-ended fund.

GreenOak raised $756m for its US-focused fund, which will invest in several property classes.

Dune Capital is targeting an $850m total equity raise for its opportunity fund.

Investing in multiple property types, the fund has targeted IRRs of 15-17% net.

The pension fund is targeting net returns of 11-12 percent.

Oklahoma Teachers’ Retirement System Rakes in 22 Percent Returns

Driven in large part by index-beating equity investments, the Oklahoma Teachers’ Retirement System returned 22 percent for the fiscal year 2013-14, according to the System’s director. That number takes into account investment expenses and manager fees.

The System outperformed its internal benchmark, which was 18.1 percent for 2013-14. A more detailed breakdown of returns from Pensions and Investments:

The top performer was master limited partnerships, which returned approximately 42%, followed by total domestic equity, 27.6%; international equity, 21.1%; high-yield bonds, 12.5%; and core fixed income, 7.9%. Real estate and private equity returns were not provided.

Longer term, the pension returned a compound annualized 13.6% for the three years ended June 30, 16.1% for five years and 9% for 10 years.

As of June 30, the pension fund’s actual asset allocation was 45.7% domestic equity; 22.2% total “non-core” assets, which consists of 8.8% MLPs, 5.5% high-yield bonds, 4.1% real estate, 2.6% private equity and 1.2% opportunistic assets;, 16.6% international equity, 14.9% core fixed income and the rest in cash. The pension fund’s target allocations are 40% domestic equity, 25% total “non-core” assets and 17.5% each international equity and core fixed income.

Pensions and Investments also reports that several of the firms with which the pension fund invests with have been put “on alert”. From P&I:

Geneva Capital Management was put “on alert” as a result of being acquired by Henderson Global Investors. Geneva Capital Management runs a $186 million domestic small-cap growth equity strategy for Oklahoma Teachers.

Lord Abbett was put also put on alert for personnel changes. Lord Abbett currently manages $603 million in a core fixed-income strategy and $262 million in a high-yield fixed-income strategy for the pension fund.

Being put on alert is a step below being placed “on notice,” which is the last step before termination.

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