Investment Plan 2011 - OPERS

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Ohio Public Employees Retirement System 2011 Annual Investment Plan Report from the CIO The following outlines the 2011 investment management plans for OPERS Defined Benefit, Health Care and Defined Contribution Funds. It also summarizes initiatives and processes as well as performance and risk expectations. Fund Strategies The Defined Benefit Fund and Health Care Fund will continue to transition toward their strategic asset allocations approved by the Board in 2009 and 2010. That transition was approximately two-thirds completed in 2010. The Defined Contribution Fund will be managed with passive management and self-directed brokerage account approaches adopted in 2010. For planning purposes, the following table outlines the projected total base case return with ranges. The base case return for 2011is lower than that for 2010 largely due to projected lower returns for fixed income. The return ranges are higher for 2011 than 2010 because of greater uncertainty surrounding the Fed’s quantitative easing impact. Defined Benefit Fund Base Case Return Active Total Return Range Return Risk 2011 6.69 -11.45 to 30.04 0.40 11.20 2010 7.56 -9.88 to 27.41 0.33 10.70 Health Care Fund - - - - - - % - - - - - - 2011 5.85 -10.07 to 26.05 0.36 9.10 2010 6.52 -6.39 to 21.83 0.39 8.70 Page 1 - - - - - % - - - - - - The active return shown in the above table are derived from an information ratio of 0.40 provided by Mercer Investment Consulting. The total risk of the Funds is marginally higher to reflect anticipated tactical asset allocation activities. The total expected returns for the Defined Contribution Funds are intended to be similar to the underlying market benchmarks since they are passively managed. Additional details regarding the Fund’s strategies are included following this report. Asset Class Strategies As outlined in the materials following this report, the Defined Benefit and Health Care Public Equity allocations during 2011 are planned to transition from a 50/50 U.S. Equity/Non-U.S. Equity mix to a global mix, based on the MSCI All Country World Index (Investable Market Index) weighting between U.S. Equity and Non-U.S. Equity. In addition, we will be adding externally managed small-cap, mid-cap, 130/30 portfolios, internally managed enhanced index portfolios, Russell 200 options and Russell 200 index portfolios,
Ohio Public Employees Retirement System 2011 Annual Investment Plan an internally managed international equity index portfolio and an internally managed 130/30 portfolio. With regard to the Defined Benefit Fund Fixed Income allocation, its allocation to the subasset class, Long Bonds, are planned to be further reduced with a corresponding increase in the Core Fixed sub-asset class allocation. Regarding alternative investments, additional Hedge Fund managers are expected to be selected. Core real estate properties are intended to be reduced with increases to opportunistic and distressed real estate equity and debt. Additional Private Equity commitments are planned. For the Opportunistic Fund, an internally managed Emerging Markets currency portfolio has been developed, was funded in November 2010 and will likely be expanded. The Opportunistic Debt portfolios will be restructured from a buy and hold to a more active strategy. The Tactical Asset Allocation Committee will continue in 2011 to determine overweights and underweights to various asset classes. The Fund Asset Allocation Strategy Committee will continue to monitor overall Fund asset and risk allocations. Initiatives Each year the Investment Division undertakes significant initiatives to enhance the capabilities and performance of the Funds. The following are the planned initiatives for 2011. New 2011 Initiatives Transition the Public Equity allocation to a market-based global weighting between U.S. Equity and Non-U.S. Equity Begin internally trading U.S. equities under management by external managers Further enhance the Fund’s risk management monitoring and analytics systems Hire external 130/30, active small and mid cap U.S. equity, Hedge Fund and non- U.S. equity core, small cap and emerging market managers Internally manage an MSCI EAFE stock-based index portfolio, opportunistic debt portfolio, Russell 200, Russell 800 and Russell 2000 U.S. enhanced index equity portfolios, and a Russell 200 equity and options-based portfolio Internally manage a portion of the securities lending portfolios Expand Hedge Fund management Expand Emerging Markets currency portfolio Restructure the allocations among the internally managed index portfolios Page 2
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Page 52: 277 East Town Street Columbus, Ohio

Investment Plan 2011 - OPERS

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