Investment Plan 2011 - OPERS

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Ohio Public Employees Retirement System 2011 Annual Investment Plan Continuation of 2010 Initiatives Transition towards the new asset allocation targets for the Defined Benefit, Health Care and Defined Contribution Funds Expand risk management and compliance capabilities Increase active risk in Public Equity Enhance the investment options offered to Defined Contribution Fund members Implement standardized new Investment Management Agreements with managers Implement internal securities lending of U.S. Treasuries and TIPS Expand operational and trading capabilities to internally manage additional U.S. equity mandates and commodities exposure Expand asset class and portfolio hedging strategies using derivatives Develop improved Benefit cash flow forecasting methods In 2010, the Investment Division completed a number of other investment-related and operational initiatives including updating all Investment Policies, creating a Hedge Fund Strategy and Policy, developing a Private Markets reporting and performance database, and significantly increasing private equity and private real estate commitments, launching and completing 5 major external public manager searches and increasing Staff by 10%. Resources The Investment Division is comprised of 60 positions with 7 vacant positions. The 53 current Staff members collectively have 790 years of investment experience and 376 years with OPERS. There are 50 individuals, or 94%, with undergraduate degrees, 33 individuals, or 62%, with graduate degrees, 2 individuals, or 4%, with doctoral degrees and 31 individuals, or 58%, which are CFA Charterholders. Staff members have worked for an average number of 2 firms prior to joining OPERS. Additional details are provided in the Staff biographies in Appendix B. The Investment Division submitted an estimated compensation and operating budget of $18.68 million for 2011, a 4.4% increase over 2010. The budget includes the Finance Department’s estimate of the 2011 incentive compensation payout, which reflects 2010 investment performance. The budget reflects the Division’s effort to maintain internal investment management where appropriate due to its material cost savings and to manage related administrative expenses. The total cost to manage the OPERS asset base in 2011 is estimated to be 43 basis points. The total estimated cost of 43 basis points translates into $313.58 million which is 44.3% higher than the previous year. This cost increase reflects many factors, including a shift in asset mix to more complex asset classes (Private Equity/Real Estate/ Hedge Funds), more Page 3
Ohio Public Employees Retirement System 2011 Annual Investment Plan active management and a higher degree of external management. The cost assumes a long-term growth trend in the fund’s asset base, whereas an unanticipated bear market would reduce the cost. The breakdown of the budget is discussed in greater detail later in this document. Summary Calendar year 2010 was a very productive period for the OPERS investment team. The Board approved a new asset liability study late in 2009 and already two thirds of the transition to the new asset allocation, primarily the publicly traded asset classes, will be completed by year end 2010. The remainder of the transition involves increases to illiquid investments, primarily real estate and private equity, which will be completed as opportunities present themselves. Changes to the hedge fund program were approved by the Board in 2010 and will be implemented in 2011 along with the other initiatives detailed in this Plan. With the strategic guidance of OPERS Board of Trustees, the OPERS Investment team is well prepared to meet the investment challenges in 2011 as we strive to succeed in an uncertain investment environment. Respectfully, John C. Lane, Chief Investment Officer Page 4
Page 1 and 2: Defined Benefit Fund Ohio PERS Inve
Page 4 and 5: Ohio Public Employees Retirement Sy
Page 34 and 35: 2011 Appendix A
Page 42 and 43: 2011 Appendix B
Page 52: 277 East Town Street Columbus, Ohio

Investment Plan 2011 - OPERS

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