Investment Plan 2011 - OPERS

Ohio Public Employees Retirement System
2011 Annual Investment Plan
United States
Although clearly improved in the last 18 months, the US economy still faces many
headwinds.
� The biggest impediment to a stronger recovery is the anemic housing market. Just
about every measure of the market—housing starts, sales, inventories, foreclosures—
shows a market with profound problems. Housing prices stopped falling in 2009, but
have stalled in the last few months. A strong housing market is one of the hallmarks of
post-WWII recoveries. We do not expect the housing market to improve much in 2011.
� Restrained consumption growth. Household savings rates have increased to 6.0%, a
reasonable level, but other measures are not encouraging. Net Worth is still well below
the peak in 2007 and remains at 2004 levels (even worse in inflation-adjusted terms).
The tough job market does not help consumer confidence. We expect modest
consumption growth in 2011—around 2.0% to 2.5%.
� Fiscal problems at the Federal, State, and local level. We worry that some states and
municipalities face even more cut-backs and budgetary woes in 2011.
� Continued restraint in the financial sector as it nurses back to health.
There are strengths in the US economy.
� Corporate sector. US corporations adjusted very quickly and rebounded back to
profitability very quickly. They have ample cash reserves, so they could start investing
and hiring very quickly.
� A lower dollar could spark a round of export growth. After improving dramatically from
2007 to 2009, the trade deficit has worsened in the last few quarters. However, the
declining dollar and moderate growth in the emerging markets should provide a lift to
exports in 2011.
Mercer Projections for US Inflation and Economic Growth: 2011-2030
Inflation
2011 2012 2013 2014 2015 2016 to Cumulative Rates
Probability Dec Dec Dec Dec Dec 2030 1 yr 2 yr 3 yr 5 yr 10 yr 20 yr
Highest Inflation 10% 3.0% 4.5% 5.5% 7.5% 5.0% 3.8% 3.0% 3.7% 4.3% 5.1% 4.4% 4.1%
Higher Inflation 20% 2.5% 3.3% 5.0% 5.0% 4.0% 3.0% 2.5% 2.9% 3.6% 4.0% 3.5% 3.2%
Baseline 40% 1.5% 2.0% 3.0% 3.5% 3.5% 2.6% 1.5% 1.7% 2.2% 2.7% 2.6% 2.6%
Lower Inflation 20% 0.7% 2.0% 2.0% 2.0% 2.0% 2.3% 0.7% 1.3% 1.6% 1.7% 2.0% 2.2%
Lowest Inflation 10% -0.3% 1.0% 1.0% 1.0% 1.0% 1.8% -0.3% 0.3% 0.6% 0.7% 1.3% 1.5%
Weighted Average 100% 1.5% 2.4% 3.3% 3.7% 3.2% 2.7% 1.5% 2.0% 2.4% 2.8% 2.7% 2.7%
Real GDP Growth
2011 2012 2013 2014 2015 2016 to Cumulative Rates
Probability Dec Dec Dec Dec Dec 2030 1 yr 2 yr 3 yr 5 yr 10 yr 20 yr
Highest Growth 10% 3.5% 4.0% 4.4% 4.4% 4.1% 3.5% 3.5% 3.7% 4.0% 4.1% 3.8% 3.6%
Higher Growth 20% 3.0% 3.5% 3.5% 3.5% 3.5% 3.2% 3.0% 3.2% 3.3% 3.4% 3.3% 3.2%
Baseline 35% 2.6% 2.9% 3.1% 3.3% 3.1% 2.9% 2.6% 2.7% 2.9% 3.0% 2.9% 2.9%
Lower Growth 25% 1.0% 2.0% 2.0% 2.0% 2.2% 2.4% 1.0% 1.5% 1.7% 1.8% 2.1% 2.3%
Lowest Growth 10% 0.0% 1.5% 1.5% 1.5% 2.0% 2.2% 0.0% 0.7% 1.0% 1.3% 1.7% 2.0%
Weighted Average 100% 2.2% 2.8% 2.9% 3.0% 3.0% 2.9% 2.2% 2.5% 2.6% 2.8% 2.8% 2.8%
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