Investment Plan - OPERS

Investment 

Plan 

2010 

U.S. 

Equity 

Defined 

Benefit 

Fund 

Ohio Public Employees 

Retirement System 

277 East Town Street 

Columbus, Ohio 43215 

www.opers.org 

800-222-7377 

Non-U.S. 

Equity 

Global 

Bonds 

Health 

Care 

Fund 

Private 

Equity 

Real 

Estate 

Defined 

Contribution 

Fund 

Opportunistic/ 

Hedge Funds 

Infrastructure

2 0 1 0 I N V E S T M E N T P L A N 

TABLE OF CONTENTS 

Investment Program 

Report from the CIO 1 

Organizational Structure 7 

Office of the CIO 9 

Fund Management 10 

Global Bonds Internal Management 12 

U.S. Equity Internal Management 14 

External Management 15 

Investment Governance 16 

Resources 20 

Fund Strategies 

Defined Benefit Fund 26 

Health Care Fund 35 

Defined Contribution Fund 43 

Asset Class Strategies 

Tactical Outlook 51 

Public Equity 55 

Public Fixed Income 62 

Private Equity 71 

Real Estate 75 

Opportunistic/Hedge Funds 81 

Commodities 81 

Infrastructure 81 

Appendix A 

Advisors’ Reviews 82 

Appendix B 

Economic Outlook 85 

Appendix C 

Investment Staff 92



Program


INVESTMENT PROGRAM 

Report from the CIO 

Dear Members of the OPERS Board of Trustees: 

Developing a plan instills a discipline to remain focused on the investment goals against which the 

Division’s performance is benchmarked. It is an honor to present the 2010 Annual Investment Plan. This 

plan is a collaborative effort of the OPERS Investment Division Staff and was discussed in detail with 

OPERS Investment Advisors. 

In our industry, value is created through tested tenets – by generating target returns for the total fund 

through each asset class and portfolio and by maintaining a competitive cost structure relative to our asset 

allocation. Performance will be driven by our insights and discipline and our ability to hire and retain key 

investment professionals who share our, and OPERS’, commitment to excellence. Our efforts are aligned 

not just with our investment goals but, more importantly, with the Investment Division’s core values and 

OPERS’ strategic objectives. 

Review of 2009 (through October 2009)¹ 

Although we tactically address the opportunities and challenges in the capital markets, we remain 

disciplined institutional investors with a long-term strategic asset allocation designed to meet our plan 

objectives. Our policies are not predicated on short-term economic cycles but rather on a long-term time 

horizon appropriate to our pension liabilities and health care commitments. 

The panic of 2008 has receded, particularly in the capital markets where it began. The economic 

recession, caused by both the panic and economic excesses, has ended. The consensus believes that the 

recovery will be an extended period of subdued growth based on a “debt hangover.” While that case makes 

sense, consensus expectations should be adopted cautiously. The U.S. economy that emerges from this 

recession will necessarily be led by different forces than those which led the last cycle; housing and retail 

spending are still in recession-mode. The level of trade, the value of the dollar, the productivity of workers, 

immigration policy, the wars abroad and many other factors will impact growth, regardless of debt levels at 

a point in time. 

The OPERS Board of Trustees (Board) and Staff’s efforts have been stress-tested by market events. While 

found not to be perfect, it is important to recognize that we have all passed the test – by quite a margin, in 

fact. Ours is a highly complex endeavor, on a scale that is breath taking. In order to fund and provide for 

the benefits our members have earned, OPERS has had to become a huge financial enterprise. Our 

capital is invested from Vietnam to outer space, but also down to simple products we all use every day and 

in companies headquartered as close as downtown Columbus. The fruits of that capital are brought back to 

our fund and made available for benefits. 

¹ Detailed information of actual 2009 accomplishments will be reported in the 2009 OPERS Comprehensive 

Annual Financial Report, published at a later date. 

1



With the Board’s confidence in Staff, expressed most recently by its timely permission in early 2009 to 

widen our asset allocation ranges to reflect market valuations born of panic rather than intrinsic value, we 

capitalized on adversity. OPERS was able to maintain its market discipline and ultimately to be a holder 

and a buyer at distressed prices rather than a seller. That’s investment discipline on top of good portfolio 

structure. Discipline (a repeatable process that adds value when applied consistently) separates 

professionals from amateurs in the field of investments. 

Because of the scale of our endeavors, we owned some of virtually all of the “problem assets” that 

bedeviled the markets: mortgages that were badly secured, short term securities that became long term, 

real estate-backed securities that are priced below par to this day and, yes, our share of Lehman and AIG, 

and other names that will eventually fade from people’s lexicons. But while we owned these things, they 

were proportional within our disciplined program and we also owned treasury bonds and other assets which 

rose to very high valuations, or maintained their value, during the panic. 

Staff is also encouraged that many of the unsustainable excesses in the broader economy and in the 

capital markets have been addressed, however abruptly and un-gently by the bear market and economic 

recession. Both now have a more solid foundation to build on. Valuations are not stretched in most market 

sectors and mortgage banking is no longer seen as entrepreneurial but once again as banking. Yet, the 

complete consequences of the bubbles and their bursting have probably not been felt. One area of 

unfinished business is the overhang of refinancing yet to take place in commercial real estate. While 

concerning, it need not end in disaster. 

In investing, adversity begets opportunity. The Board has capitalized on this first, by not slavishly forcing 

itself to sell assets at the worst possible time and later, by its subsequent review and adjustment of asset 

allocations across the Defined Benefit, Health Care and Defined Contribution Funds. In every case, we 

have used market insights to improve the balance of return and risk. However, in no case have these 

allocations withdrawn exposure to markets or the broad economy that are the very sources of both risk and 

the opportunity for returns. Our capital must be employed if it is to provide benefits. 

In reviewing information up through the third quarter, there were many accomplishments during the year, including: 

Participation in the market recovery that has restored an important measure of the funding lost. When 

peer performance data for comparably-sized plans is available for comparison, we believe it will show a 

more complete measure of this achievement. 

Proactive steps taken to reduce the impact of the severe financial crisis on the total fund. This included 

tactical positioning of asset classes, active management of our financial sector exposure, vigilant 

monitoring of portfolios and coordination with our investment partners. 

Execution of the strategic asset allocation for the Health Care Fund. This transition resulted in a higher 

allocation for equity-like assets relative to fixed income assets to generate a higher return while 

maintaining a reasonable risk parameter. 

Increased utilization of derivatives to gain and hedge exposure to asset classes in a cost effective and 

efficient manner. The prudent use of derivatives has also allowed the fund to more efficiently manage 

Board-approved ranges around our target allocation. 

2



Our achievements likewise have supported OPERS strategic efforts to go from “Good 2 Great” through our 

nine initiatives in the OPERS Strategic Plan. Below is a report on our progress (codes succeeding 

initiatives reference the groupings within OPERS Strategic Plan): 

Create a hedge fund strategy (FP4) 

Following Staff presentations and recommendations in June and July 2009, the Board approved a 3% 

allocation to Hedge Funds combined with its opportunistic allocation. Staff has invested several 

hundred person-hours developing implementation plans for Board review and eventual request for 

proposals for managers. 

Increase Private Equity allocation within the Health Care Fund (FP5) 

The unexpected reduction in the projected solvency period for the Health Care Fund led the Board to 

elect to reverse its prior decision to add a Private Equity allocation to the Health Care Fund. However, 

for unrelated reasons, the Board doubled its allocation to Private Equity within the Defined Benefit Fund, 

which, when added to an already below-target weighting, provides OPERS with plenty of ongoing 

investment opportunity in this asset class. 

Enhance the OPERS Investment Options offered to Defined Contribution Fund (FP6) 

Changes included adding 10 target date funds composed of varying allocations of our six existing core 

funds. These replaced the pre-mixed portfolios previously offered. The Board later accepted the 

addition of three asset classes (Inflation-indexed Bonds, High Yield Bonds and Long Duration Bonds) as 

enhancements to the Target Date funds. Staff has begun implementation of those enhancements and 

will also be hiring active managers for the U.S. equity options (large cap and small cap). 

Going beyond this strategic initiative, Staff has revamped the risk/compliance framework and manager 

selection processes for the Defined Contribution Fund to make them more consistent with those for the 

Defined Benefit and Health Care Funds. 

Develop and implement a plan to gain exposure to non-U.S. equity markets using derivatives and 

internal management capabilities (FP7) 

The importance of this initiative has increased along with the larger allocation to Non-U.S. Equity from 

20% to 25% in the Defined Benefit Fund. Staff has been able to use over-the-counter swaps (following 

appropriate implementation of operational processes and controls, legal documentation review and 

adding a new counterparty), to first add and then reduce, exposure to the developed markets within 

Non-U.S. Equity in 2009. Staff is preparing to extend this capability to the developing markets within 

Non-U.S. Equity. Staff will also continue its evaluation of using listed futures and internal management 

for Non-U.S. Equity exposure. 

3



Private market database (IN F9) 

Staff is preparing to “go live” with the eFront system, which holds all pertinent data relevant to OPERS 

Private Real Estate and Private Equity holdings, no later than the first quarter of 2010 following a period 

of parallel testing of results with existing methods (using September 30 and December 31 quarter-end 

data). The private equity portion of the system was released for production tests on schedule on 

July 1, 2009. 

International Real Estate Securities manager selection (IN F10) 

Staff is re-drafting the real estate policy to incorporate the REIT portion of the Defined Benefit Fund’s 

Real Estate portfolio within the broader allocation to real estate. This would eliminate the strategic 

distinction between public and private real estate within the Defined Benefit Fund, leaving Staff to 

implement the real estate policy using the best-valued assets available at the time funds are deployed. 

Therefore, the international real estate exposure will also be implemented using whatever vehicles are 

most efficient when funds are deployed (e.g., international REITs, closed-end funds, open-end funds, 

infrastructure funds or other means). 

External Public Markets external manager cost and efficiency review (IN F11) 

Staff has retroactively negotiated reductions more than $1 million of fee savings from external 

managers and advisors. In addition, one of the very few fortunate results of the bear market was a 

significant reduction in fees based on asset size. 

In addition, Staff has developed and distributed a new streamlined Investment Manager Agreement 

(IMA) to four select managers. Their feedback will be incorporated into the final product. The goal of 

this IMA process is to generate a standardized legal agreement for external managers, which is 

customized only for differences in asset type rather than negotiated on an ad hoc basis (currently). This 

process will save time and legal fees. 

Staff is also in the final selection process for a group of transition managers, following the completion of 

an RFP process, which will lower costs and improve efficiency. 

Defined Benefit Fund strategic asset allocation (IN F12) 

The Board has approved changes in the asset allocation of the Defined Benefit Fund to better balance 

return and risk. The Board also made modifications to the asset allocation of the Health Care Fund. 

Staff is preparing a complete asset class policy review for the Board as well as studying the necessary 

steps to implement the new allocation. 

Front office system implementation (IN F13) 

There was significant progress in the implementation of a multi-year technology plan to enhance our 

portfolio management and trading capabilities. The Bloomberg order management system for fixed 

income has been operational since October 29, 2008. The Charles River order management system for 

equities was successfully implemented in January 2009, which in turn allowed the old Macgregor 

system to be shut down. The Bloomberg cash management system was recently deployed in February 

and is operational. The eFront system and Eagle data warehouse will, when complete, support better 

planning and reporting across all asset classes and provide the foundation for better cataloguing of risk 

across the all asset classes. 

4



Overview of 2010 Annual Investment Plan 

As always, the Investment Division’s goals reflect the Board’s ongoing mandate to earn expected returns, 

while managing to an acceptable level of risk. 

Several of the Investment Division initiatives are listed below: 

Implement Board-approved asset allocation changes in the Defined Benefit, Health Care and Defined 

Contribution Funds. 

Update Board investment policies, educate Staff and the Board regarding market conditions and 

investment opportunities, design implementation plans, prepare, issue and evaluate responses to RFPs 

and take steps necessary to make progress on the implementation of the changes in these asset 

allocations in a cost-effective and considered manner. 

Add resources and fill Staff vacancies to accommodate investment in new asset classes. 

Further expand risk management capabilities and compliance systems. 

Add a higher proportion of active management to Public Equity. 

Develop improved forecasting capabilities of employer/employee cash receipts and pension/healthcare 

payments to better manage fund asset allocation. 

Evaluate an implementation plan for expanding the internally managed securities lending program to 

include lending U.S. treasuries and Treasury Inflation Protected Securities (TIPS). 

Research and develop trading, information technology, reporting and back office infrastructure to 

internally manage Non-U.S. Equities, additional U.S. Equity mandates and commodities exposure. 

Expand capabilities for implementing asset class or portfolio hedging strategies. 

Evaluate the Opportunistic Core and Opportunistic Short Duration portfolio strategies and implement 

modifications, as appropriate. 

Asset Management 

As prudent stewards of a public fund with a long-term investment horizon, the Investment Division will 

continue to monitor and measure three distinct sources of return and risk: strategic (policy allocation), 

tactical (investment implementation level) and active (manager level). Each source of return and risk 

contributes to achieving overall investment results. The Defined Benefit and Health Care Funds sections 

presented later in this Annual Investment Plan provide details about how policy, tactical and active returns 

will be generated within a framework of managed risks. 

In summary, the 2010 goals established for each source of return and risk for the Defined Benefit and 

Health Care Funds are as follows: 

The total expected return of the OPERS’ Defined Benefit Fund in 2010 is 7.56% and is comprised of the 

expected policy return of 7.23% and active management return of 0.33%. The total risk that will be 

taken to achieve this return is 10.70%, which is derived from the combination of the policy risk of 

10.50%, tactical risk of 0.30% and active risk of 0.80%. Long term expected returns remain above 8%. 

5



The total expected return of the OPERS’ Health Care Fund in 2010 is 6.52% and is comprised of the 

expected policy return of 6.12% and active management return of 0.39%. The total risk that will be 

taken to achieve this return is approximately 8.70%, which is derived from the combination of the policy 

risk of 8.50%, tactical risk of 0.30% and active risk of 0.45%.%. Long term expected returns remain 

above 7%. 

Resources 

As stated previously, the Investment Division will thoughtfully align its resources against targeted priorities 

to ensure the success of our stated goals by year-end 2010. The Investment Division currently has 59 

authorized positions. The Investment Division submitted an estimated compensation and operating budget 

of $17.9 million for 2010, a 4% increase over 2009. The budget includes an estimate of the 2010 incentive 

compensation payout, which reflects 2009 investment performance. Consistent with the rest of OPERS, 

the budget assumes no merit increases for Staff in 2010. It also reflects the Division’s effort to maintain 

internal investment management where appropriate due to its very large cost savings and to manage 

related administrative expenses. 

It should be noted that the estimated total cost to manage the OPERS asset base in 2010 will be 31.2 basis 

points (a basis point equals one hundredth of a percent). The total estimated cost of 31.2 basis points 

translates to $217.25 million, 10% higher in dollars than the previous year. This cost reflects many factors, 

including a shift in asset mix to more complex asset classes. The cost assumes a long-term growth trend in 

the fund’s asset base; a continued bear market would reduce the cost. The breakdown of the budget is 

discussed in greater detail throughout this plan. 

Summary 

The Investment Division remains focused on living up to OPERS’ mission “to provide secure retirement 

benefits for our members.” This can only be accomplished by clearly establishing our goals and diligently 

implementing and monitoring them in the face of both the daunting challenges and immense opportunities 

within the capital markets. 

Detailed information regarding how each of the initiatives will be achieved follows in this document, which is 

organized into three sections: Initiatives and Resources, Fund Strategies and Asset Class Strategies. 

Finally, I would like to sincerely thank the OPERS Board of Trustees for their trust, support and oversight of 

the investment program during these tumultuous times. Most especially, I would like to express my 

gratitude to my investment associates as we rise to the challenges and continue our journey to become a 

great investment organization delivering the best risk-adjusted returns for our plan participants and an 

integral part of OPERS. 

Respectfully, 

Richard Shafer, CFA 

Interim CIO 

6

Fund 

Management 



Organizational Structure 

The Investment Division organizational chart is shown here; function detail is provided within the 

organizational charts included in the individual Resources sections. 

Fund Management / 

Global Bonds 

(Deputy CIO) 

Asset 

Allocation 

U.S. Equity Index 

Management 

U.S. Equity Trading 

Quantitative 

Analysis 

Derivatives 

Commodities 

Global Bonds 

Internal 

Management 

Core 

Long Duration 

Short Duration 

TIPS 

Cash 

Securities 

Lending 

U.S. Equity 

Internal 

Management 

Business 

Management 

7 

CIO 

External Management 

(Deputy CIO) 

Public 

Markets 

External Managers 

Defined 

Contribution 

Hedge Funds 

Risk Management 

Oversight 

Private 

Markets 

Private 

Equity 

Private 

Real Estate 

Infrastructure 


Compliance

Bill Miller 

Deputy CIO 

(Internal & Fund 

Management) 



Leadership of Principal Groups 

The following chart shows the names of the individuals responsible for each principal functional area. 

Deryck Lampe 

Senior Portfolio Manager 

U.S. Equity Enhanced Index 

(Internal) 

CIO 

Vacant 

Rick Shafer 

Deputy CIO 

(External Management) 

8 

Dan German 

Risk Manager 

Chris DeRose 

Chief Executive Officer 

Alan Davidson 

Compliance Manager



Office of the CIO 

Mary Ann Kabbaz 

Executive Assistant 

Junior Analyst 

Vacant 

Dan German 

Risk Manager 

Risk Analyst 

Vacant 

CIO 

Vacant 

The Chief Investment Officer (CIO) is responsible for manager selection from those recommended by 

investment Staff; recommending investment policy and strategy to the Board; investment performance; 

overall management of the Investment Division, and; allocating resources within the Division. The CIO also 

bears responsibility for risk management and compliance within the Investment Division. 

9 

Alan Davidson 

Compliance Manager 

Pat Edgington 

Investment Reporting 

Manager 

Compliance Analyst 

Vacant 

Chris DeRose 

Chief Executive Officer

Roger Fox 

Investment Adviser 



Fund Management 

J.G. Lee 

Fund Manager 

Joan Stack 

Trading Manager 

Christy Ruoff 

Equity Trader 

Matt Sherman 

Senior Equity Trader 

Fund Management works closely with other areas of the Investment Division and has both investment and 

non-investment responsibilities. The team is responsible for: 

Reviewing, monitoring and implementing changes to the asset allocations and related risk budgets for 

the Defined Benefit, Health Care and Defined Contribution Funds; 

Performing research and analysis on allocations to asset classes, sub-asset classes and portfolios; 

Conducting investment risk analysis, assessments and risk management for the Defined Benefit, Health 

Care and Defined Contribution Funds; 

Providing quantitative research and analysis in support of internal asset management and other internal 

group activities; 

Management of asset class beta, which includes beta portfolios such as the U.S. Equity Index portfolio 

and passive derivatives portfolios (approximately $19 billion managed internally in 13 accounts); and 

Equity trading and derivatives trading for internal equity portfolios and asset allocation management. 

The deputy CIO reports directly to the CIO and is responsible for assuring all area responsibilities are 

performed. Assisting the deputy CIO are two fund managers, a trading manager, an investment adviser 

and supporting Staff. 

10 

Bill Miller 

Deputy CIO 

Erick Weis 

Fund Manager 

Josh Biddinger 

Portfolio Assistant 

David Buchholz 


Xinyang Gu 

Quantitative / Research 

Roger Tong 

Quantitative / Research 


Vacant 

Paul Greff 


Fixed Income



Fund Management (continued) 

One fund manager manages asset allocation research activities and is responsible for the investment 

performance of beta portfolios such as the U.S. Equity Index portfolio and passive derivatives portfolios as 

well as analytical projects and various initiatives. The two quantitative/research Staff and portfolio assistant 

II Staff support the Fund Management group under the direction of the fund manager. 

The other fund manager is responsible for quantitative research and analytic support for the entire 

Investment Division, evaluating the risk-and-return characteristics of the funds and the asset class 

composites across the Investment Division. 

The trading manager manages two traders and is responsible for executing trades for the Fund 

Management group portfolios as well as the internally managed Enhanced Index portfolio and REIT 

portfolio. Trading activities in support of the Fund Management group include executing trades for portfolios 

during transitions. The trading area executes trades using a variety of tools including electronic algorithmic 

and program trading systems and, as such, works closely with the investment portfolio managers and the 

quantitative research group to incorporate enhancements into the trading systems. The area also performs 

and reviews the analysis of internal transactions from a pre-trade and post-trade perspective using 

transactions cost-analysis tools and models. 

The investment adviser assists with forward planning as well as operational, internal audit, information 

technology, legal, investment accounting and performance matters. 

The Fund Management group has 12 positions, one of which is vacant. 

11

Erik Cagnina 

Portfolio Manager 

Securitized Products 

Analyst 

Vacant 



Global Bonds Internal Management 

Mark Ehresman 

Senior Investment 

Analyst 

Tony Enderle 


Analyst 

Nick Kotsonis 


Analyst 

Todd Soots 


Analyst 

JoAnn Yocum 

Investment Assistant II 

Bill Miller 

Deputy CIO 

Paul Greff 


Fixed Income 

Eric France 


The Global Bonds Internal Management group is currently organized with one senior portfolio manager, four 

portfolio managers, six analysts and an investment assistant II. The senior portfolio manager provides 

oversight of the group and is responsible for the strategic positioning and investment performance of all the 

internally managed bond portfolios. 

The leads of the different functional areas work as a team on the Global Bonds Internal Management 

investment decision-making process and report to the senior portfolio manager. They also handle the dayto-day 

management of the internal portfolios. Authorized individuals in the Global Bonds Internal 

Management group handle trade execution. 

Two portfolio managers oversee the Core, Long Duration and TIPS portfolios and serve as backups to each 

other. They identify major themes, sector weightings and perform portfolio optimization and construction. 

The other two portfolio managers oversee the Short Duration, Core Opportunistic and Short Duration 

Opportunistic portfolios and serve as backups to each other. They are also responsible for relative value, 

individual security analysis and trading within the securitized markets and work closely with the other 

portfolio managers to implement securitized asset strategies within the portfolios. 

12 

Jerry May 

Cash/Securities 

Lending Manager 

Teresa Black 


Lending Analyst 

eSecLending 

Associate 

Chris Rieddle 

Portfolio Manager



Global Bonds Internal Management (continued) 

One senior investment analyst plays a lead role and provides oversight to the credit research group. The 

analysts are responsible for assigned industries in the corporate sector, which includes company analysis 

and the identification of relative value ideas. The credit analysts, along with the lead analyst, are 

responsible for assigned sectors and provide back up to other sectors. They work closely with the portfolio 

managers to implement credit strategies within the portfolios. This organizational structure ensures that all 

sectors are monitored constantly so that OPERS is in the position to take advantage of marketplace 

opportunities. 

The cash securities/lending management Staff manage the OPERS cash/securities lending programs 

across all asset classes. In addition, these individuals manage the cash portfolios supporting OPERS’ 

operating liabilities and cash collateral resulting from securities lending activities. There is also one external 

eSecLending associate supporting a portion of the securities lending activities. 

The Global Bonds Internal Management group manages approximately $27 billion in 12 accounts. 

13



U.S. Equity Internal Management 

Steve Barker 

Senior Analyst 

Joe Boushelle 

Equity Analyst 

Scott Murray 


Tim Swingle 


Deryck Lampe 


U.S. Equity Enhanced Index 

The U.S. Equity Internal Management group is organized with a total of nine equity analysts, one portfolio 

manager and a senior portfolio manager. The operation has changed substantially over the last 18 months 

with a new investment philosophy and investment process. The process is highlighted by a highly 

structured investment philosophy focused on maximizing risk adjusted returns. This is achieved through an 

intense iterative process between analysts and portfolio managers where each target security is analyzed 

across numerous variables to consistently assess relative competitive advantage and the associated risk in 

achieving the advantage. The approach is centered on the notion that each security has an intrinsic value 

and that it can be identified through thorough modeling and a strong understanding of critical variables. 

Although security selection is at the forefront of the approach, a significant amount of quantitative modeling 

is used to ascertain the level of exposure to individual variables and insure factor exposure is adequately 

contained. 

Currently, the U.S. Equity Internal Management group is responsible for the internally managed Enhanced 

Index and REIT portfolios valued at approximately $5.4 billion. The Enhanced Index portfolio uses the 

Russell1000 as its benchmark and the REIT portfolio is benchmarked against the Wilshire Real Estate 

Securities Index (RESI). 

14 

Chris Gregson 


Kevin Martin 


Mike Parker 


Brian Langenberg 


Jake Lake 



Vacant




Louis Darmstadter 


Private Equity 

Samir Sidani 


Analyst 


Vacant 

Investment Analyst 

Vacant 


Vacant 

Junior Analyst 

Vacant 

Kimberly Van Gundy 


Administration Analyst 

DeAnne Rau 


Public Markets 

John Blue 


Analyst 

Dan Sarver 



Hedge Funds 

Vacant 

The External Management group consists of the External Public Markets, Private Equity, Private Real 

Estate and Infrastructure teams. External Public Markets includes all external managers pursuing U.S. 

Equity, Non-U.S. Equity, High Yield, Emerging Market Debt and Hedge Fund strategies. 

Each of these teams develops and implements investment strategies and is responsible for the relative 

investment performance of their asset class or functional area. They perform due diligence, select 

managers, monitor activities of existing managers and adjust portfolio exposures. 

Within all asset classes there is “misfit” risk arising from operating under broadly defined benchmarks for 

the asset class while employing managers who pursue narrower strategies in implementation. Through 

manager selection, use of derivatives and rebalancing, it is possible to manage this misfit while potentially 

adding value in the same way that a portfolio manager seeks relative value in the securities chosen for her 

or his portfolio. In addition to manager selection, each of the teams within External Management must 

develop and implement strategies to effectively manage benchmark misfit risk. 

15 

Rick Shafer 

Deputy CIO 

Brad Sturm 


Real Estate 

Stephen Stuckwisch 


Lewis Tracy 


Analyst 



Vacant



Investment Governance 

In addition to the organizational structure described, the CIO utilizes a variety of committees, working 

groups and meeting structures to govern the Investment Division’s activities. This internal governance 

arrangement enhances collective inputs, retains institutional knowledge, provides documentation of the due 

diligence process and other processes, promotes transparency and accountability and formalizes decisionmaking 

processes. Internal governance is designed to combine structure and flexibility to efficiently bring 

the appropriate decision makers together on a timely basis and maintain a control environment to minimize 

operational risk. We nonetheless are always looking for ways to counteract any “group-think” that enters 

the process. 

Committee Structure 

Fund Asset 

Allocation and 

Strategy 

External Public 

Markets 

Real Estate 


U.S. Equity 

Global Bonds 

Index Portfolios 

Investment Related 


Strategy Group 


Hedge Funds 

Defined 

Contribution 

Oversight 

Transition 

Management 

Iran Sudan 

Divestiture 

16 

Board 

Board 

Investment Committee 

CIO 

Risk Related 

Risk Steering 

Counterparty 

Operational 

Broker Review 

Pricing, Valuation 

and Performance 

Management 

Related 

Compliance 

Planning 

Quarterly 

Department 

Meetings



The following exhibit illustrates the structure and relationship of the policies within the total System and its 

three investment funds. 

DEFINED BENEFIT 

FUND 

Statement of 


Objectives and Policies 

Defined Benefit Fund 

TOTAL OPERS SYSTEM 

HEALTH CARE 

FUND 

FUND POLICIES 

Statement of 



Health Care Fund 

ASSET CLASS POLICIES 

Public Equities Policy 

Public Fixed Income Policy 

Cash Management Policy 

Private Equity Policy 

Real Estate Policy 

Opportunistic Fund Policy 

Member Directed Policy 

Hedge Fund Policy (TBD) 

Infrastructure Policy (TBD) 

Liquidity Policy (TBD) 

OTHER INVESTMENT RELATED POLICIES 

Broker - Dealer Policy 

Derivatives Policy 

External Managers’ Insurance Policy 

External Public Manager Evaluation Policy 

External Public Manager Search Policy 

Iran and Sudan Divestment Policy 

Material Nonpublic Information Policy 

Ohio-Qualified Manager Policy 

Personal Trading Policy 

Responsible Contractor Policy 

Securities Lending Policy 

Soft Dollar and Other Brokerage Commission Policies 

17 

DEFINED CONTRIBUTION 

FUND 

Statement of 



Defined Contribution Fund



The schematic below provides the detail of the committees comprising the internal governance 

arrangement. The committees and working groups listed below vary in both the frequency of meetings and 

the degree of structure and formality—some provide informal information sharing and some have formal 

written charters. 

The CIO or deputy CIO’s chair the committees, or provide leadership to the working groups or formal 

meetings listed below. 

Committees Attendees Purpose Frequency Authority 

Broker Review 

Compliance 

Counterparty 

Defined Contribution 

Oversight 


Markets 

Fund Asset Allocation 

and Strategy 

Global Bonds 

Index Portfolios 


Investment Strategy 

Group 

Staff and Senior 

Management 


Management 


Management 

External 

Management Staff 


Management 


Management 

Internal 


Internal 


Internal 



Management 

Monitor, Review and Approve 

Brokers and Commissions 

Escalate and Resolve Compliance 

Issues 

Monitor, Review and Approve 

Counterparty Limits 

18 

Monthly Approval 

Twice Monthly Approval 


Coordinate with DC team Monthly Discussion 

External Public Manager/ Hedge 

Fund Oversight & Selection 

Review Asset Allocation and 

Strategies, Cash Forecasting, 

Fund and Portfolio Risk Metrics 

and Manager Guidelines 

Perform Sector Reviews and 

Outlooks, Discuss Portfolio 

Composition and Risk 

Management Issues 

Review Markets, Strategies 

and Internally Managed Index 

Portfolios 

Preliminary and Final Transaction 

Review 


Weekly Approval 

Bi-Weekly 

Daily 

As Needed 

Portfolio 

Decisions 

Portfolio 

Decisions 

Portfolio 

Decisions 

Floating Agenda Monthly Discussion 

continued



Committees Attendees Purpose Frequency Authority 

Operational Risk 


Management 

Identify and Monitor Risks Arising 

from Investment Implementation 

19 

Quarterly At 

Minimum 

Discussion 

Planning Senior Staff Activity Coordination Monthly Discussion 

Pricing, Valuation and 

Performance 


Real Estate 

Risk Steering 

Transition 

Management 

U.S. Equity 

Internal 



Management 


Management 

Senior 

Management 

Int. and Ext. 


Internal 


Address and Resolve Pricing, 

Valuation, Performance and 

Benchmark Issues 

Preliminary and Final 

Transaction Review 

Preliminary and Final 

Transaction Review 

Risk Assessments and 

Prioritization 

Transition Large Amounts 

Between Managers 

Strategy, Tactics, News Flow & 

Training 

As Needed Discussion 

As Needed Approval 

As Needed Approval 

Monthly Discussion 

As Needed 

The following committees and working groups have investment Staff representation to facilitate 

communication and interaction across OPERS divisions. 

Advisors Council 

Corporate Governance Working Group 

Guiding Council 

Iran Sudan Divestiture Committee 

Leadership Council 

Management Council 

Technology Council 

Daily 

Portfolio 

Decisions 

Portfolio 

Decisions



Resources 

Staffing 

Recruiting and retaining the best and most talented Staff is a critical priority for the Investment Division. 

Here is a presentation of anticipated full staffing for 2010: 

Office 

of 

the CIO 

20 

Fund 

Mgmt. 

Target Staffing for Year End 2010 

Global 

Bonds 

Internal 

Mgmt. 

U.S. Equity 

Internal 

Mgmt. 

External 

Mgmt. 

Total 

Invest. 

Division 

2009 Investment Plan Projected Staffing 11 11 10 11 12 55 

Current Staffing 4 11 11 10 10 46 

Vacant Positions - To be filled in 2010 4 1 1 1 6 13 

Year End 2010 Target Staffing 8 12 12 11 16 59 

Status of Open Positions During Fourth Quarter 2009 

Position Vacant 

Office of the CIO CIO 1 

Office of the CIO Junior Analyst 1 

Office of the CIO Compliance Analyst 1 

Office of the CIO Risk Analyst 1 

Fund Management Portfolio Assistant 1 

Global Bonds Internal Management Securitized Products Analyst 1 

U.S. Equity Internal Management Senior Analyst 1 

External Management Junior Analyst 1 

External Management Portfolio Manager - Private Equity 1 

External Management Investment Analyst - Private Equity 1 

External Management Portfolio Assistant 1 

External Management Hedge Fund Analyst 1 

External Management Portfolio Manager - Infrastructure 1 

Total 13



The following chart compares OPERS’ asset size and staffing as of June 30, 2009 to its peer group. 

Individual peers are listed in the table below. 

Assets ($ billions) 

$200 

$150 

$100 

$50 

$0 

11 Large State Plans as of 6/30/2009 

0 50 100 150 200 250 

The chart above suggests that the Investment Division staffing level is relatively low compared to its asset 

base, particularly given the extent of internal management of assets. The focus of the management team 

continues to be on effectively increasing productivity and improving results without significantly increasing 

Staff size, except when new responsibilities and asset classes are added. 

The following table lists the public pension peer group referenced in the chart above and in other sections 

of this Annual Investment Plan. 

21 

Investment Staff 

11 Large State Plans as of 6/30/2009 

Peers Assets ($ millions) Investment Staff 

California Public Employees' Retirement System $169,417 229 

California State Teachers' Retirement System $118,927 100 

New York Common Retirement Fund $109,886 45 

Washington State Investment Board $95,769 80 

Florida State Board of Administration $90,201 65 

New Jersey Division of Investment $57,809 70 

North Carolina Retirement System $55,953 21 

Ohio Public Employees Retirement System $54,281 46 

State of Wisconsin Investment Board $52,568 124 

Ohio State Teachers Retirement System $47,644 111 

Division of Investment Services - State of Georgia $11,534 49



Staffing Costs 

Assuming full staffing levels in 2010, the chart below details the estimated annual cost of salaries, benefits 

and incentive compensation for the Investment Division. 

Office 

of the 

CIO 

By comparison, the estimated total compensation costs for 2009 were $11.16 million or 1.47 basis points on 

$76.16 billion in average assets. The increase in total 2010 compensation costs is entirely due to filling 

budgeted positions and adding four new ones. 

Operating Budget 

The Investment Division’s 2010 operating budget (excluding compensation) as of October 8, 2009, was 

$6.65 million (this operating budget is subject to change prior to its final approval in late 2009). This 

operating budget reflects an increase of $0.62 million, or 10.2% percent, from the 2009 budget. 

22 

Estimated 2010 Total Compensation Costs ($ millions) 

Fund 

Mgmt. 

Global 

Bonds 

Internal 

Mgmt. 

U.S. Equity 

Internal 

Mgmt. 

External 

Mgmt. 

Total 

Invest. 

Division 

Salaries 0.99 1.40 1.49 1.47 2.12 7.47 

Benefits 0.30 0.49 0.55 0.55 0.71 2.60 

Incentive Compensation 0.00 0.25 0.35 0.35 0.25 1.20 

Total Compensation 1.28 2.14 2.40 2.37 3.09 11.27 

Average Assets in $ billions NA 18.14 17.38 4.65 29.39 69.56 

Compensation in Basis Points NA 1.2 1.4 5.1 1.1 1.62 

Office 

of the 

CIO 

Operating Budget less Total Compensation ($ millions) 

Fund 

Mgmt. 

Global 

Bonds 

Internal 

Mgmt. 

U.S. Equity 

Internal 

Mgmt. 

External 

Mgmt. 

Total 

Invest. 

Division 

2009 Operating Budget 1.19 1.17 0.76 0.55 2.36 6.03 

2010 Operating Budget 1.47 1.31 0.86 0.61 2.40 6.65 

Percent Change 23.1% 12.1% 13.3% 10.2% 1.8% 10.2% 

Percent of Total 22.1% 19.8% 12.9% 9.2% 36.1% 100.0% 

Average Assets in $ billions NA 18.14 17.38 4.65 29.39 69.56 

Operating Budget in Basis Points NA 0.72 0.49 1.31 0.82 0.96



2010 Operating Budget 

Audit/Legal/ 

Consulting Services 

40.75% 

Quotes & Data 

Feeds 

26.64% 

23 

Office Supplies & 

Equipment 

0.05% 

Analytics 

10.52% 

Research 

8.98% 

Training & Travel 

6.66% 

IT 

6.40% 

The chart above shows the allocation of the operating expenses across major budget categories. 

The primary expenses for Audit/Legal/Consulting services are for the Division and individual asset 

classes. For 2010, estimated Audit/Legal/Consulting fees total $1.85 million, which is 28% of the total 

operating budget. 

The primary expenses in the Quotes and Data Feeds category are for data and services provided by 

vendors such as Bloomberg, Bloomberg POMS, Thomson Reuters and Factset. 

The Analytics category includes tools and analytics provided by BARRA, Russell, Yield Book and 

Quantitative Services Group. 

Research expenses are comprised of independent research services such as Thomson Reuters, 

Moody's Credit Reports, MSCI Index Service, Intex, Trepp, Global Trading Analytics and RiskMetrics. 

Training and Travel expenses include all business travel, which is primarily for due diligence on new 

investments, monitoring existing investments, enhancing operational capabilities and promoting Staff’s 

educational and professional growth. 

IT expenses are for the Charles River Trade Order Management System, eFront and Eagle PACE data 

warehouse.



Management Fees 

The expected annual management fees by asset class for the Investment Division are in the chart below. 

The estimate of fees is based on the 2010 estimated average market value for the Defined Benefit and 

Health Care Funds, as detailed in the average assets section below. 

Estimate of External and Internal Management Fees in Dollars and Basis Points 

Total for 2010 

Average 

Assets 

($ millions) 

External Management Internal Management 

Annual 

Fee 

($ millions) 

There is a very obvious difference between the scale of internal and external management fees. Within 

U.S. Equity, the high proportion of passive assets contributes to the much lower internal management fees, 

reducing them by more than half over what they would be for active assets. However, the overwhelming 

portion of the difference between external and internal is that it is simply cheaper to manage assets 

internally (lower salaries and incentives, lower rent, less travel, no marketing costs, no stand-alone 

business expenses and no profit margin). 

24 

Annual 

Fee 

(bps) 

Average 

Assets 

($ millions) 

Annual 

Fee 

($ millions) 

Annual 

Fee 

(bps) 

Public Equity 19,191 48.2 25.1 21,723 2.2 1.0 

U.S. Equity 4,386 10.5 23.9 21,723 2.2 1.0 

Non-U.S. Equity 14,805 37.7 25.4 NA NA NA 

Public Fixed Income 1,449 6.3 43.3 17,383 1.7 1.0 

Core Fixed 109 0.4 35.0 8,357 0.6 0.7 

Long Bonds NA NA NA 5,492 0.4 0.7 

TIPS NA NA NA 2,342 0.1 0.5 

Short Bonds NA NA NA 575 0.2 3.9 

High Yield 953 4.1 43.4 NA NA NA 

Emerging Mkt Debt 387 1.8 45.6 NA NA NA 

Liquidity NA NA NA 618 0.3 5.4 

Alternatives 8,732 139.8 160.1 1,083 0.3 3.1 

Private Equity 2,777 74.0 266.4 NA NA NA 

Real Estate 5,210 56.5 108.4 NA NA NA 

REIT NA NA NA 708 0.3 3.9 

Opportunistic/Hedge Funds 569 6.4 112.5 357 0.0 0.6 

Infrastructure 177 2.9 166.1 NA NA NA 

Commodities NA NA NA 18 0.0 19.0 

Total Fund 29,373 194.3 66.1 40,190 4.2 1.0



Average Assets 

The table below shows a summary of actual and estimated assets for the Defined Benefit and Health Care Funds. 

Office 

of the 

CIO 

The combined assets are based on 2010 target portfolio and asset class allocations for the Defined Benefit 

and Health Care Funds. The estimated assets reflect the Defined Benefit and Health Care Funds 

estimated market values, returns and cash flows as detailed in the Defined Benefit and Health Care Funds 

Strategies section of this plan. 

Total Costs 

The estimated total cost of the investment program in 2010 will be $217.25 million or 31.2 basis points of 

assets under management. This compares to the total costs in the 2009 Annual Investment Plan of $197.42 

million or 25.9 basis points of assets under management. The increase reflects the growing allocation to 

more complex externally managed asset classes such as Private Equity and Private Real Estate. 

CEM Benchmarking, Inc. is an independent benchmarking firm for pension plans and provides an 

assessment of OPERS investment operations relative to a global set of peers. In 2008, OPERS actual cost 

of 21.5 basis points was below the benchmark cost of 26.3 basis points. This savings of 4.8 basis points 

amounts to $33.4 million on average assets of $69.56 billion. 

25 

Actual and Estimated Assets 

Combined Defined Benefit and Health Care Funds 

($ billions) 

Fund 

Mgmt. 

Global 

Bonds 

Internal 

Mgmt. 

U.S. Equity 

Internal 

Mgmt. 

External 

Mgmt. 

Total 

Invest. 

Division 

August 31, 2009 Actual Unaudited NA $17.2 $16.3 $5.9 $26.1 $65.5 

December 31, 2009 Estimated NA $17.6 $17.3 $5.2 $28.2 $68.3 

Average 2010 Estimated NA $18.1 $17.4 $4.7 $29.4 $69.6 

December 31, 2010 Estimated NA $16.9 $17.5 $3.7 $32.7 $70.8 

Office 

of the 

CIO 

Fund 

Mgmt. 

Estimated 2010 Total Costs 

($ millions) 

U.S. Equity 

Internal 

Mgmt. 

Global 

Bonds 

Internal 

Mgmt. 

External 

Mgmt. 

Total 

Invest. 

Division 

Total Compensation 1.28 2.14 2.37 2.40 3.09 11.27 5.2% 

Operating Budget less Compensation 1.47 1.31 0.61 0.86 2.40 6.65 3.1% 

Manager Fees 194.27 194.27 89.4% 

Custody and Overhead 5.05 2.3% 

Total Costs 2.75 3.45 2.98 3.25 199.76 217.25 100.0% 

Percent of Total 1.3% 1.6% 1.4% 1.5% 91.9% 

Average 2009 Asset Size ($ b) NA 18.14 4.65 17.38 29.39 69.56 

Costs in Basis Points to Asset Class NA 1.9 6.4 1.9 68.0 NA 

Costs in Basis Points to Total Fund 0.4 0.5 0.4 0.5 28.7 31.2 

% of 

Total


Fund 

Strategies


FUND STRATEGIES 


Expected Asset Growth 

The table below summarizes Staff’s estimate of market value and ranges for the Defined Benefit Fund at 

December 31, 2010. The pessimistic and optimistic cases are based on the 2010 assumptions listed in the 

Defined Benefit Fund’s Return and Risk section. 

The anticipated market value of $56.6 billion for December 31, 2009 is derived by a smoothing projection 

that incorporates both the actual Defined Benefit Fund return through August 31, 2009 and the expected 

full-year return for 2009 presented in the 2009 Annual Investment Plan. 

26 


2010 Expected Asset Growth 

Estimated Market Values, Returns and Cash Flows 

Pessimistic 

Case 

Base 

Case 

Optimistic 

Case 

12/31/09 Market Value ($ billions) $56.6 $56.6 $56.6 

Expected Total Return -9.9% 7.6% 27.4% 

Expected Investment Gain ($ billions) ($5.6) $4.3 $15.5 

Expected Cash Flow ($ billions) ($2.0) ($2.0) ($2.0) 

12/31/10 Market Value ($ billions) $49.0 $58.9 $70.1



Asset Allocation 

The 2010 target asset allocation and ranges for the Defined Benefit Fund reflect an estimate by Staff of the 

progress that may be made towards the new asset allocations adopted in 2009. They are shown below 

along with actual allocations of comparable peers as of June 30, 2009. 

8/31/2009 12/31/10 

Peer 

Asset Class 

Actual 

Target Range 

Group* 

Public Equity 64.4% 58.3% 40% to 60% 53.8% 

U.S. Equity 43.2% 36.8% 20% to 30% 34.4% 

Non-U.S. Equity 21.1% 21.5% 20% to 30% 19.4% 

Public Fixed Income 22.9% 24.3% 15% to 32% 29.6% 

Core Fixed 12.0% 11.7% 6% to 12% 28.1% 

Long Bonds 9.3% 9.4% 6% to 12% NA 

High Yield 0.7% 2.0% 2% to 8% 1.5% 

Liquidity 0.9% 1.1% 0% to 4% NA 

Alternatives 12.7% 17.4% 8% to 30% 16.6% 

Private Equity 3.9% 5.2% 0% to 14% 6.2% 

Real Estate 8.2% 10.0% 0% to 14% 6.8% 

Opportunistic/Hedge Funds 0.6% 1.6% 0% to 5% 3.6% 

Infrastructure 0.0% 0.6% 0% to 3% NA 

Total Defined Benefit Fund 100.0% 100.0% 100.0% 

*Peer group defined previously in the Investment Program section of this plan. 

The internally managed opportunistic distressed fixed income assets are included in the 

Opportunistic/Hedge Funds asset class. The asset mix shown above moves the Defined Benefit Fund 

toward the asset allocation targets that were developed based on an asset-liability study completed in 2009. 

Throughout 2010 and beyond, Staff will work with OPERS’ Advisors to recommend certain enhancements 

to the asset mix and asset management strategies targeted at raising the expected return within acceptable 

risk levels. While not all of these strategies have been clearly defined, several are described in the Asset 

Class Strategies section later in this plan. 

27



Estimated assets in dollar amounts are listed below and are based on December 31, 2010 target 

allocations. 

Actual 

Assets 

($ billions) 

Estimated assets represent Staff’s general expectation for progress towards transitioning assets to the 

Board’s recently approved long-term asset allocation targets. Actual assets at future points in time will be 

within Board-approved ranges but will also reflect market outcomes, opportunities for Staff to transition 

assets in an efficient and cost effective manner and the availability of attractive investment opportunities. It 

is estimated that the Board’s long-term asset allocation targets will substantially be achieved within the next 

three years. Private Market asset classes, such as Private Equity and Real Estate, will continue to be 

invested according to their long-term pacing models and may take five years to fully reach Board targets. 

Details of expected Private Market commitments and fundings are provided in the Asset Class Strategies 

section of this plan. 

28 

Estimated 

Assets 

($ billions) 

Target 

Allocation 

8/31/2009 12/31/2009 2010 Average 12/31/2010 12/31/2010 

Public Equity $35.0 $35.4 $34.9 $34.4 58.3% 

U.S. Equity $23.5 $24.1 $22.9 $21.7 36.8% 

Non-U.S. Equity $11.5 $11.3 $12.0 $12.7 21.5% 

Public Fixed Income $12.5 $13.6 $14.0 $14.3 24.3% 

Core Fixed $6.5 $7.3 $7.1 $6.9 11.7% 

Long Bonds $5.1 $5.4 $5.5 $5.5 9.4% 

High Yield $0.4 $0.4 $0.8 $1.2 2.0% 

Liquidity $0.5 $0.4 $0.5 $0.7 1.1% 

Alternatives $6.9 $7.6 $8.9 $10.2 17.4% 

Private Equity $2.1 $2.5 $2.8 $3.1 5.2% 

Real Estate $4.5 $4.5 $5.2 $5.9 10.0% 

Opportunistic/Hedge Funds $0.3 $0.6 $0.8 $0.9 1.6% 

Infrastructure $0.0 $0.0 $0.2 $0.4 0.6% 

Total Defined Benefit Fund $54.4 $56.6 $57.8 $58.9 100.0%



Composition of Investment Portfolio 

The Public Equity and Public Fixed Income asset classes are managed identically for both the Health Care 

and Defined Benefit Funds; however, the allocations to all asset classes may vary as they reflect unique 

circumstances for each fund. The table below shows the Defined Benefit Fund’s projected June 30, 2010 

allocation between internal and external asset management by asset class along with actual allocations of 

comparable peers as of June 30, 2009. 

Internal Management External Management 

Asset Class 

OPERS Peer Group* OPERS Peer Group* 

Public Equity 

U.S. Equity 83.2% 63.2% 16.8% 36.8% 

Non-U.S. Equity 

Public Fixed Income 

0.0% 30.1% 100.0% 69.9% 

Core Fixed 98.7% 84.8% 1.3% 15.3% 

Long Bonds 100.0% NA 0.0% NA 

High Yield 0.0% 0.7% 100.0% 99.3% 

Liquidity 

Alternatives 

100.0% NA 0.0% NA 

Private Equity 0.0% 1.7% 100.0% 98.3% 

Real Estate 0.0% 13.8% 100.0% 86.2% 

Opportunistic/Hedge Funds 33.7% 0.0% 66.3% 100.0% 

Infrastructure 0.0% NA 100.0% NA 

Weighted Averages 53.3% 52.5% 46.7% 47.5% 

*Peer group defined previously in the Investment Program section. 

The table shows that OPERS is similar to its peer group overall but differs in the much higher use of internal 

management for U.S. Equity and Public Fixed Income. The amount shown as OPERS internally managed 

Opportunistic/Hedge Funds represents the opportunistic distressed fixed income assets. Internal assets 

under management have declined for both OPERS and peers from the prior year (see 2009 Annual 

Investment Plan). OPERS is somewhat dissimilar from its peer group in exclusively using external asset 

management in the Non-U.S. Equity asset class. As noted in the Report from the CIO, during 2010 Staff 

will further explore managing passive Non-U.S. Equity assets internally. 

OPERS’ use of internal asset management provides many advantages including: 

Flexibility: Rebalancing decisions are executed efficiently and cost-effectively. Control over the assets 

enables OPERS to reposition its portfolios as opportunities arise and market conditions change. 

Cost control: Asset management is a high-margin business, and over the long term, external asset 

management fees can create a material drag on net returns. External asset management fees typically 

range from a multiple of six to 20 times the cost of managing assets internally. Where internally 

managed portfolios can provide very cost-effective exposure to asset beta, or competitive alpha to 

externally managed assets, there is a major benefit to OPERS from internal management. 

29



Market insight: Internal asset management provides important information across asset classes to help 

in decision-making processes such as: 

External manager hiring and oversight—improves Staff’s ability to assess external manager 

strengths and weaknesses. 

Across markets—frequently, Staff can leverage information garnered from one asset class 

to support decision-making in another asset class. 

More effective payment of pension and health care benefits, operating expenses and funding of external 

managers – cash to pay benefits, operating expenses or fund external managers can be raised 

immediately from internally managed assets whereas raising cash from external managers can take 

weeks or longer. 

The table below shows the Defined Benefit Fund’s projected June 30, 2010 allocation between active and 

passive asset management by asset class along with actual allocations of comparable peers as of June 30, 

2009. The share of active management for OPERS will necessarily rise to reflect the new larger allocations 

to alternatives and liquid market strategies that cannot be effectively indexed, such as high yield. 

Public Equity 

Asset Class 

*Peer group defined previously in the Investment Program section. 

Active Management Passive Management 

OPERS Peer Group* OPERS Peer Group* 

U.S. Equity 31.9% 40.9% 68.1% 59.1% 

Non-U.S. Equity 82.5% 84.3% 17.5% 15.7% 


Core Fixed 100.0% 81.8% 0.0% 18.2% 

Long Bonds 100.0% NA 0.0% NA 

High Yield 100.0% 83.3% 0.0% 16.7% 

Liquidity 100.0% NA 0.0% NA 

Alternatives 

Private Equity 100.0% 100.0% 0.0% 0.0% 

Real Estate 100.0% 99.7% 0.0% 0.3% 

Opportunistic/Hedge Funds 100.0% 75.0% 0.0% 25.0% 

Infrastructure 100.0% NA 0.0% NA 

Weighted Averages 71.2% 70.3% 28.8% 29.7% 

30



Return and Risk 

The Defined Benefit Fund’s performance objective is to earn a long-term rate of return that exceeds the 

return of the Defined Benefit Fund policy benchmark within an appropriately constrained risk framework. 

The table shows expected returns for 2010 along with its ranges. These are the ‘beta’ returns expected 

from each asset class, without regard to over- or under-performance relative to the benchmarks. 

2010 Policy Return Assumptions 

Asset Classes Pessimistic Base Optimistic 

Public Equity -10.0% 8.4% 28.5% 

U.S. Equity -10.1% 8.4% 28.5% 

Non-U.S. Equity -9.9% 8.4% 28.5% 

Public Fixed Income -3.7% 3.7% 13.7% 

Core Fixed -1.1% 3.2% 10.6% 

Long Bonds -6.5% 4.1% 16.7% 

High Yield -11.0% 7.2% 28.2% 

Liquidity 0.3% 1.0% 2.3% 

Alternatives -14.2% 8.2% 35.4% 

Private Equity -16.7% 9.6% 41.2% 

Real Estate -14.3% 7.6% 35.1% 

Opportunistic/Hedge Funds -4.4% 7.0% 18.6% 

Infrastructure -14.2% 8.2% 27.8% 

Total Return -9.9% 7.6% 27.4% 

31



Active Return and Risk 

The following table details the expected excess performance, or active return, and the tracking error 

(volatility of active returns) for each asset class, as well as the overall fund. Expected active returns for 

several items in the following table are set at zero. Typically, this is because the benchmark chosen already 

contemplates excess returns. The Hedge Fund benchmark is LIBOR + 4%. Historically, such a return 

would approximate an equity return. However, this asset class is not normally expected to achieve equity 

returns, but rather to compound capital at a rate much higher than cash by preserving capital in bad times 

and earning it in good times. Therefore, a real return of 4% already contemplates excess returns. 

For real estate, the benchmark return is gross of fees while the expected return is net of fees. In such a 

high fee asset class, earning net returns that equal gross returns means that excess returns will be 

achieved by 100 or more basis points. The same logic applies to the infrastructure allocation. The 

expected excess return of zero in the liquidity allocation contemplates that seeking excess returns is 

counter-productive when the purpose of the allocation is to provide safety and liquidity in all investment 

environments. 

Tracking error is a standard measure of risk used in public market asset classes; we have extended it to 

alternatives as well. Where markets are generally more efficient, such as U.S. equity and public fixed 

income, the outperformance goals are modest. In less efficient markets, such as private equity, the goals 

for incremental return above the indices are more aggressive. 

32



Average 

Policy 

Allocation 

in Percent 

Public Equity 60.6% 

The table shows an anticipated active management contribution of 33 basis points to the fund’s return. 

The 80 basis points of estimated tracking error indicates a 68% probability that the active return will be in a 

range of -47 basis points to +113 basis points. This confidence interval is arrived at by subtracting the 

tracking error from, and adding the tracking error to, the expected active return. The target contribution to 

fund performance of 33 basis points for 2010 is equal to the 33 basis points projected for 2009. 

The figures shown in the table above are aggregated from the component portfolios in each of the asset 

classes. The tracking error that results at the fund level is lower than would be suggested by a simple 

weighted average due to the diversifying effects of the active return interaction among the managers and 

the asset classes. 

33 

Schedule of Expected Performance and Volatility 

Active Return 

Performance 

Objectives (bps) 

Active Return 

Performance 

Contribution 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

U.S. Equity 39.8% 20 8.0 32 0.63 

Non-U.S. Equity 20.7% 75 15.6 115 0.65 

Public Fixed Income 24.2% 

Core Fixed 12.3% 23 2.8 75 0.31 

Long Bonds 9.5% 15 1.4 100 0.15 

High Yield 1.4% 82 1.1 325 

Liquidity 0.9% 0 0.0 30 0.00 

Alternatives 15.2% 

Private Equity 4.6% 100 4.6 750 0.13 

Real Estate 9.0% 0 0.0 600 0.00 

Opportunistic/Hedge Funds 1.3% 0 0.0 300 0.00 

Infrastructure 0.3% 0 0.0 300 0.00 

Total Defined Benefit Fund 100.0% NA 33 80 0.41



The return estimates below were derived from the asset class return expectations developed by internal 

Staff. The single-point estimate return of 7.56% is comprised of an expected return of 7.23% from the 

policy mix and an additional contribution of 0.33% from active management. 

2010 Total Return Assumptions 

Sources of Return Pessimistic Base Optimistic 

Policy -9.11% 7.23% 25.98% 

Tactical -0.30% 0.00% 0.30% 

Active -0.47% 0.33% 1.13% 

Total Return -9.88% 7.56% 27.41% 

Sources of Risk 

2010 Total Risk and Risk for Return Assumptions 

Due to rounding, the total return may not appear to sum correctly from the sources of return. Variability risk 

is measured by standard deviation for policy and total risk and by tracking error for active risk. 

The information ratio compares the active return of an asset to its most relevant benchmark index and is a 

measure of risk-adjusted return. The Sharpe Ratio compares the excess return of an asset against the 

return of the risk-free asset. 

As stated in the Report from the CIO, fund investments are measured and monitored within a specific 

framework, which identifies return and risk from three sources: 

Policy: The return and risk inherent in the policy asset mix (allocation) adopted by the Board. The mix 

has expected return and variability characteristics that arise directly from the underlying asset classes. 

The expected return of the OPERS Defined Benefit Fund policy mix is 7.23% for 2010 with an 

estimated risk, or variability, of 10.70%. As such, approximately two-thirds of the time, actual annual 

policy returns are expected to be within a range of –3.47% to +17.93%. 

Tactical: The return and risk introduced by deviations from the policy asset mix. The table above does 

not show any excess expected return from tactical asset allocation activities. 

Active: The return and risk introduced by active management (security selection). 

In summary, the total expected return of the Defined Benefit Fund in 2010 is 7.56%, which is the sum of the 

expected policy return of 7.23% and active return of 0.33%. The estimated risk anticipated to achieve this 

return is the combination of the policy, tactical and active risk, which is 10.70%. 

34 

Variability 

Risk 

Information 

Ratio 

Sharpe 

Ratio 

Policy 10.50% 0.59 

Tactical 0.30% 

Active 0.80% 0.41 

Total Risk 10.70% 0.61





The table below summarizes Staff’s estimate of market value and ranges for the Health Care Fund at 

December 31, 2010. The pessimistic and optimistic cases are based on the 2010 assumptions listed in the 

Health Care Fund’s Return and Risk section. 

The anticipated market value of $11.9 billion for December 31, 2009 is derived by a smoothing projection 

that incorporates both the actual Health Care Fund return through August 31, 2009 and the expected full 

year return for 2009 presented in the 2009 Annual Investment Plan. 

35 


2010 Expected Asset Growth 

Estimated Market Values, Returns and Cash Flows 

Pessimistic 

Case 

Base 

Case 

Optimistic 

Case 

12/31/09 Market Value ($ billions) $11.7 $11.7 $11.7 

Expected Total Return -6.4% 6.5% 21.8% 

Expected Investment Gain ($ billions) ($0.7) $0.8 $2.5 

Expected Cash Flow ($ billions) ($0.5) ($0.5) ($0.5) 

12/31/10 Market Value ($ billions) $10.4 $11.9 $13.7




The 2010 target asset allocation and ranges for the Health Care Fund reflect Staff’s estimate of the 

progress that will be made towards the new asset allocations adopted in 2009, and are shown below. 

8/31/2009 

12/31/10 

Asset Class 

Actual 

Target Range 

Public Equity 53.1% 49.1% 47% to 63% 

U.S. Equity 28.4% 26.0% 23.5% to 31.5% 

Non-U.S. Equity 24.7% 23.2% 23.5% to 31.5% 

Public Fixed Income 39.8% 42.7% 26% to 42% 

Core Fixed 6.2% 13.0% 17.5% to 25.5% 

TIPS 19.3% 19.7% 0% to 7.5% 

Short Bonds 9.9% 0.0% 0% to 10% 

High Yield 0.6% 1.9% 0% to 6% 

Emerging Mkt Debt 3.0% 3.6% 1% to 9% 

Liquidity 0.7% 0.5% 0% to 4% 

Alternatives 7.1% 8.2% 2% to 14% 

REIT 6.1% 6.0% 2% to 10% 

Opportunistic/Hedge Funds 0.9% 1.9% 0% to 8% 

Commodities 0.0% 0.3% 0% to 2% 

Total Health Care Fund 100.0% 100.0% 

There is no peer universe for health care funds run by comparable large public pension plans. The 

internally managed opportunistic distressed fixed income assets are included in the Opportunistic/Hedge 

Funds asset class. The asset mix shown above moves the Health Care Fund toward the asset allocation 

targets that were developed based on an asset-liability study completed in 2009. 

Throughout 2010 and beyond, Staff will work with OPERS’ Advisors to recommend certain enhancements 

to the asset mix and asset management strategies targeted at raising the expected return within acceptable 

risk levels. While not all of these strategies have been clearly defined, several are described in the Asset 

Class Strategies section later in this plan. 

36



Estimated assets in dollar amounts are listed below and are based on December 31, 2010 target 

allocations. 

Actual 

Assets 

($ billions) 

Estimated assets represent Staff’s general expectation for progress towards transitioning assets to the 

Board’s recently approved long-term asset allocation targets. Actual assets at future points in time will be 

within the Board approved ranges but will also reflect market outcomes, opportunities for Staff to transition 

assets in an efficient and cost effective manner and the availability of attractive investment opportunities. 

It is estimated that the Board’s long-term asset allocation targets will substantially be achieved within the 

next three years. 

37 

Estimated 

Assets 

($ billions) 

Target 

Allocation 

8/31/2009 12/31/2009 2010 Average 12/31/2010 12/31/2010 

Public Equity $5.9 $6.2 $6.0 $5.9 49.1% 

U.S. Equity $3.2 $3.3 $3.2 $3.1 26.0% 

Non-U.S. Equity $2.7 $2.9 $2.8 $2.8 23.2% 

Public Fixed Income $4.4 $4.7 $4.9 $5.1 42.7% 

Core Fixed $0.7 $1.2 $1.4 $1.6 13.0% 

TIPS $2.1 $2.3 $2.3 $2.4 19.7% 

Short Bonds $1.1 $0.7 $0.6 $0.5 4.0% 

High Yield $0.1 $0.1 $0.1 $0.2 1.9% 

Emerging Mkt Debt $0.3 $0.3 $0.4 $0.4 3.6% 

Liquidity $0.1 $0.1 $0.1 $0.1 0.5% 

Alternatives $0.8 $0.8 $0.9 $1.0 8.2% 

REIT $0.7 $0.7 $0.7 $0.7 6.0% 

Opportunistic/Hedge Funds $0.1 $0.1 $0.2 $0.2 1.9% 

Commodities $0.0 $0.0 $0.0 $0.0 0.3% 

Total Health Care Fund $11.1 $11.7 $11.8 $11.9 100.0%



Composition of Investment Portfolio 

The Public Equity and Public Fixed Income asset classes are managed identically for both the Health Care 

and Defined Benefit Funds; however, the allocations to all asset classes vary as they reflect unique 

circumstances for each fund. The table below shows the Health Care Fund’s projected June 30, 2010 

allocation between internal and external asset management by asset class. 

Internal Management 


Asset Class 

OPERS 


Public Equity 

U.S. Equity 83.2% 16.8% 



0.0% 100.0% 

Core Fixed 11.7% 88.3% 

TIPS 100.0% 0.0% 

Short Bonds 100.0% 0.0% 

High Yield 0.0% 100.0% 

Emerging Mkt Debt 0.0% 100.0% 

Liquidity 

Alternatives 

100.0% 0.0% 

REIT 100.0% 0.0% 

Opportunistic/Hedge Funds 48.2% 51.8% 

Commodities 100.0% 0.0% 

Weighted Averages 50.5% 49.5% 

There is no peer universe for health care funds run by comparable large public pension plans. The amount 

shown as OPERS internally managed Opportunistic/Hedge Funds represents the opportunistic distressed 

fixed income assets. 

The Health Care Fund utilizes a higher proportion of more liquid securities with no Private Real Estate or 

Private Equity holdings due to the shorter duration of this fund relative to the Defined Benefit Fund. 

38



The table below shows the Health Care Fund’s projected June 30, 2010 allocation between active and 

passive asset management by asset class. The share of active management for OPERS will necessarily 

rise to reflect the new larger allocations to alternatives and liquid market strategies that cannot be 

effectively indexed, such as high yield and emerging market debt. 

Active Management 

Passive Management 

Asset Class 



Public Equity 

U.S. Equity 31.9% 68.1% 



82.5% 17.5% 

Core Fixed 100.0% 0.0% 

TIPS 100.0% 0.0% 

Short Bonds 100.0% 0.0% 

High Yield 100.0% 0.0% 

Emerging Mkt Debt 100.0% 0.0% 

Liquidity 

Alternatives 

100.0% 0.0% 

REIT 100.0% 0.0% 

Opportunistic/Hedge Funds 100.0% 0.0% 

Commodities 0.0% 100.0% 

Weighted Averages 74.0% 26.0% 

There is no peer universe for health care funds run by comparable large public pension plans. Passive 

management is utilized in the more-efficient U.S. Equity asset class and to a lesser extent in the Non-U.S. 

Equity asset class. The remainder of the fund is substantially actively managed. 

A much higher proportion of the Health Care Fund (78%) is actively managed than for the Defined Benefit 

Fund (71.2%). This primarily reflects a lower allocation to U.S. Equity in the Health Care Fund since this 

asset class is predominantly managed passively. The Health Care Fund has other asset allocation 

differences including that a higher proportion is allocated to publicly-traded asset classes and the Real 

Estate allocation within alternatives is accessed through actively managed public securities due to their 

greater liquidity. 

39




The Health Care Fund’s performance objective is to earn a long-term rate of return that exceeds the return 

of the Health Care Fund policy benchmark within an appropriately constrained risk framework. The table 

shows expected returns for 2010 along with its ranges. These are the ‘beta’ returns expected from each 

asset class, without regard to over- or under-performance relative to the benchmarks. 

2010 Policy Return Assumptions 

Asset Classes Pessimistic Base Optimistic 

Public Equity -10.0% 8.4% 28.5% 

U.S. Equity -10.1% 8.4% 28.5% 

Non-U.S. Equity -9.9% 8.4% 28.5% 

Public Fixed Income -1.5% 3.2% 11.4% 

Core Fixed -1.1% 3.2% 10.6% 

TIPS -0.1% 2.5% 10.2% 

Short Bonds -1.0% 2.8% 7.4% 

High Yield -11.0% 7.2% 28.2% 

Emerging Mkt Debt -8.7% 6.5% 22.7% 

Liquidity 0.3% 1.0% 2.3% 

Alternatives -4.6% 7.0% 18.7% 

REIT -4.4% 7.0% 18.6% 

Opportunistic/Hedge Funds -4.4% 7.0% 18.6% 

Commodities -13.2% 4.6% 24.3% 

Total Return -6.4% 6.5% 21.8% 

40




The table below details the expected excess performance, or active return, and the tracking error (volatility 

of active returns) for each asset class, as well as the overall fund. Tracking error is a standard measure of 

risk used in public market asset classes; we have extended it to alternatives as well. Where markets are 

more efficient, such as U.S. equity and public fixed income, the outperformance goals are modest. 

Average 

Policy 

Allocation 

in Percent 

Public Equity 51.0% 


The table shows an anticipated active management contribution of 39 basis points to the fund’s return. The 

45 basis points of estimated tracking error indicates a 68% probability that the active return will be in a 

range of -6 basis points to +84 basis points. This confidence interval is arrived at by subtracting the 

tracking error from, and adding the tracking error to, the expected active return. The target contribution to 

fund performance of 39 basis points for 2010 is slightly higher than the 34 basis points projected for 2009 

primarily due to a higher performance objective for the Non-U.S. Equity asset class. 

The figures shown in the table above are aggregated from the component portfolios in each of the asset 

classes. The tracking error that results at the fund level is lower than would be suggested by a simple 

weighted average due to the diversifying effects of the active return interaction among the managers and 

the asset classes. 

41 

Active Return 

Performance 

Objectives 

(bps) 

Active Return 

Performance 

Contribution 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

U.S. Equity 27.2% 20 5.4 32 0.63 

Non-U.S. Equity 23.8% 75 17.9 115 0.65 

Public Fixed Income 41.3% 

Core Fixed 11.5% 23 2.6 75 0.31 

TIPS 19.8% 15 3.0 50 0.30 

Short Bonds 4.8% 25 1.2 75 0.33 

High Yield 1.2% 82 1.0 325 0.25 

Emerging Mkt Debt 3.2% 156 5.1 385 0.41 

Liquidity 0.6% 0 0.0 30 0.00 

Alternatives 7.6% 

REIT 6.0% 50 3.0 200 0.25 

Opportunistic/Hedge Funds 1.4% 0 0.0 300 0.00 

Commodities 0.1% 0 0.0 300 0.00 

Total Health Care Fund 100.0% NA 39.3 45 0.87



The return estimates below were derived from the asset class return expectations developed by internal 

Staff. The single-point estimate return of 6.52% is comprised of an expected return of 6.12% from the 

policy mix and an additional contribution of 0.39% from active management. 

2010 Total Return Assumptions 

Sources of Return Pessimistic Base Optimistic 

Policy -6.04% 6.12% 20.68% 

Tactical -0.30% 0.00% 0.30% 

Active -0.06% 0.39% 0.84% 

Total Return -6.39% 6.52% 21.83% 

Sources of Risk 

2010 Total Risk and Risk for Return Assumptions 

Due to rounding, the total return may not appear to sum correctly from the sources of return. Variability risk 

is measured by standard deviation for policy and total risk and by tracking error for active risk. 

The information ratio compares the active return of an asset to its most relevant benchmark index and is a 

measure of risk-adjusted return. The Sharpe Ratio compares the excess return of an asset against the 

return of the risk free asset. 

As stated in the Report from the CIO, fund investments are measured and monitored within a specific 

framework, which identifies return and risk from three sources: 

Policy: The return and risk inherent in the policy asset mix (allocation) adopted by the Board. The mix 

has expected return and variability characteristics that arise directly from the underlying asset classes. 

The expected return of the OPERS Health Care Fund policy mix is 6.12% for 2010 with an estimated 

risk, or variability, of 8.70%. As such, approximately two-thirds of the time, actual annual policy returns 

are expected to be within a range of –2.58% to +14.82%. 

Tactical: The return and risk introduced by deviations from the policy asset mix. The table above does 

not show any excess expected return from tactical asset allocation activities. 

Active: The return and risk introduced by active management (security selection). 

In summary, the total expected return of the Health Care Fund in 2010 is 6.52%, which is the sum of the 

expected policy return of 6.12% and active return of 0.39%. The estimated risk anticipated to achieve this 

return is the combination of the policy, tactical and active risk, which is 8.70%. 

42 

Variability 

Risk 

Information 

Ratio 

Sharpe 

Ratio 

Policy 8.50% 0.60 

Tactical 0.30% 

Active 0.45% 0.87 

Total Risk 8.70% 0.63



Defined Contribution Fund 


Since its inception on January 2, 2003 through August 31, 2009, the Defined Contribution Fund’s assets 

have grown to over $300 million. Asset growth has averaged approximately $50 million every 12 months. 

Future growth of the Defined Contribution Fund assets is expected to be equal to, or slightly above, 

historical averages due to the addition of nearly 2,000 new participants each year. 

The OPERS Target Date Funds were introduced on October 1, 2008. In June 2010, Staff will be adding the 

Bond Index Fund, the Non-U.S. Stock Index Fund and the OPERS Target 2055 Fund. In December 2010, 

the OPERS Target 2010 Fund will be transitioning into the OPERS Target Payout Fund as part of the 

normal phasing of Target Date Funds. 

The following table shows the distribution of assets across the various OPERS investment options within 

the Defined Contribution Fund as of August 31, 2009. 

Defined Contribution Fund Assets 

OPERS Investment Options 

Core Funds 

Assets Under 

Management 

($ millions) 

8/31/09 

OPERS Stable Value Fund $28.0 

OPERS Bond Index Fund 0.0 

OPERS Bond Fund 15.0 

OPERS Stock Index Fund 25.4 

OPERS Large Cap Fund 18.5 

OPERS Small Cap Fund 15.7 

OPERS Non-U.S. Stock Index Fund 0.0 

OPERS Non-U.S. Stock Fund 

Target Date Funds 

21.1 

OPERS Target Payout Fund 0.6 

OPERS Target 2010 Fund 6.5 










Total $311.2 

43




The target asset allocation and ranges for the Target Date Funds shown in the tables below will be effective 

from June 25, 2010 to June 30, 2011. Target asset allocations for Target Date Funds migrate over time with 

the ratio of equities to fixed income becoming more conservative as the target date approaches the 

retirement date. 

The assets of the Target Date Funds were initially allocated across the six existing core funds. Two major 

changes for the Target Date Funds are in progress for the first or second quarter of 2010. The underlying 

funds will use passive options, where available, and include treasury inflation-protected securities (TIPS), 

long duration bonds and high yield bonds as new asset classes to improve risk-adjusted return expectations 

and enhance diversification. 

Underlying Funds 

Stable Value Bond Index TIPS Long Duration 

OPERS Target Date Funds Target Range Target Range Target Range Target Range 

OPERS Target Payout Fund 25% +/- 3.7% 32% +/- 4.0% 13% +/- 3.4% 0% +/- 0% 

OPERS Target 2015 Fund 5% +/- 2.1% 39% +/- 4.1% 10% +/- 3.5% 0% +/- 0% 

OPERS Target 2020 Fund 0% +/- 0% 32% +/- 2.7% 2% +/- 0% 0% +/- 0% 

OPERS Target 2025 Fund 0% +/- 0% 14% +/- 2.4% 0% +/- 0% 4% +/- 1.5% 







Underlying Funds 

High Yield Bonds Large Cap Index Small Cap Index Non-U.S. Stock Index 

OPERS Target Date Funds Target Range Target Range Target Range Target Range 

OPERS Target Payout Fund 0% +/- 0% 10% +/- 1.3% 5% +/- 1.7% 15% +/- 2.2% 

OPERS Target 2015 Fund 0% +/- 0% 13% +/- 1.4% 10% +/- 1.8% 23% +/- 2.4% 

OPERS Target 2020 Fund 4% +/- 2.6% 17% +/- 1.7% 14% +/- 2.1% 31% +/- 2.6% 








44



Composition of Investment Portfolios 

The Defined Contribution Fund is composed of investments that are directed by the members of the 

Member-Directed and Combined Plans. As of September 30, 2009, participation in the Member-Directed 

Plan approximated 9,700 members, while participation in the Combined Plan approximated 7,300 

members. Over the last 12 months, most new members (81%) have defaulted to the Traditional Pension 

Plan. Of the new members who have actively selected a retirement plan, 78% have selected the Traditional 

Pension Plan, 15% the Member-Directed Plan and 7% the Combined Plan. 

Periodically, Staff compares the OPERS Defined Contribution Fund to market peers to stay abreast of best 

practices and monitor industry trends. Current findings on marketplace trends include: 

Periodically, Staff compares the OPERS Defined Contribution Fund to market peers to stay abreast of best 

practices and monitor industry trends. Current findings on marketplace trends include: 

Many plan sponsors continue to offer a large number of investment options (15 or more funds). 

However, some plan sponsors are reducing the number of investment options to simplify the account 

management process for participants. 

Many plan sponsors offer a multi-tiered investment structure of balanced funds (lifestyle and/or target 

date) and individual funds. The Target Date Funds provide a diversified investment option for 

participants that is simple to use. Most sponsors still allow their participants to build their own portfolio 

using the individual funds that the plan offers. 

In 2002, Staff and external advisors recommended a Defined Contribution Fund investment structure that 

includes a multi-tiered investment option line-up with asset allocation funds and core fund investment 

options. As of October 1, 2008, Target Date Funds replaced the Pre-Mix Portfolios to offer an improved 

solution to those who would rather not pick their own mix of individual OPERS Funds or actively manage 

their allocation over time. 

45



The present investment structure is designed to satisfy the investment objective of the Defined Contribution 

Fund, which is to offer an array of funds that provide participants the ability to construct a portfolio that: 

Is diversified by asset class and investment style, 

Spans the risk-return spectrum, 

Outperforms appropriate benchmarks over time where active management is used, and 

Avoids un-rewarded risk 

The table below details the respective benchmark indices and peers for each of the OPERS Investment 

Options. 

OPERS Investment Options Benchmark Index Benchmark Peers 

OPERS Stable Value Fund Custom Stable Value (1) Stable Value Universe 

OPERS Bond Index Fund Barclays Aggregate Mercer Mutual Fund U.S. Fixed Index Universe 

OPERS Bond Fund Barclays U.S. Universal Mercer Mutual Fund U.S. Fixed Core Universe 

OPERS Stock Index Fund Russell 3000 Mercer Mutual Fund U.S. Equity Large Cap Index Universe 

OPERS Large Cap Fund Russell 1000 Mercer Mutual Fund U.S. Equity Large Cap Universe 

OPERS Small Cap Fund Russell 2000 Mercer Mutual Fund U.S. Equity Small Cap Universe 

OPERS Non-U.S. Stock Index Fund MSCI ACWI x U.S. Mercer Mutual Fund International Equity Index Universe 

OPERS Non-U.S. Stock Fund MSCI ACWI x U.S. Mercer Mutual Fund International Equity Universe 

OPERS Target Payout Fund Custom Payout (2) Mercer Mutual Fund Lifecycle Income Universe 

OPERS Target 2010 Fund Custom 2010 (2) Mercer Mutual Fund Lifecycle 2010 Universe 








OPERS Target 2050 Fund Custom 2050 (2) Mercer Mutual Fund Lifecycle 2050+ Universe 

OPERS Target 2055 Fund Custom 2055 (2) Mercer Mutual Fund Lifecycle 2050+ Universe 

1) The Custom Stable Value Index is composed of the following weights: 5% Merrill Lynch 3-Month Treasury Bills, 45% Barclays’ 

1-5 Year Government/Corporate Bond, 35% Barclays’ Intermediate Government/Corporate and 15% Barclays’ Aggregate, 

smoothed over three year periods. 

2) The Target Date Custom Indexes are composed of benchmarks of the underlying OPERS Funds using the same target 

allocations as the respective OPERS Target Date Fund target allocation. 

46



Expected Fees 

The table below shows the expected asset management fees for each of the OPERS Investment Options in 

the Defined Contribution Fund. The estimates of fees are based on a projection of average assets and 

expected basis points of fees for 2010 including shifting to passive underlying funds, where appropriate, in 

the OPERS Target Date Funds. While fees are extremely low relative to the industry, Staff will continue to 

monitor the costs of the Defined Contribution Fund. 

Estimate of External Management Fees in Dollars and Basis Points 

Total for 2010 

Estimated Annual Estimated Annual 


Fees 

Fees 

OPERS Investment Options 

($ millions) ($ millions) 

(bps) 

OPERS Stable Value Fund $21.6 $0.05 23 

OPERS Bond Index Fund 16.2 0.01 4 

OPERS Bond Fund 8.6 0.02 20 

OPERS Stock Index Fund 27.4 0.01 3 

OPERS Large Cap Fund 19.9 0.01 5 

OPERS Small Cap Fund 16.9 0.01 8 

OPERS Non-U.S. Stock Index Fund 10.8 0.01 10 

OPERS Non-U.S. Stock Fund 11.9 0.03 29 

OPERS Target Payout Fund 1.2 0.00 10 

OPERS Target 2010 Fund 5.4 0.00 9 










Total $336.2 $0.33 10 

47



Since its inception, the OPERS Defined Contribution Fund has successfully maintained a low investment 

cost structure. As of June 30, 2009 the investment cost of the Defined Contribution Fund was 

approximately 18 basis points, while the universe weighted average investment cost stood at 83 basis 

points. Both of these figures include only investment expense ratios. 

OPERS Expense Average Net 

Asset Class 6/30/09 Allocation Ratios Expense Ratio* 

U.S. Large Cap Equity Index 8.00% 0.03% 0.29% 

U.S. Large Cap Equity 5.80% 0.05% 0.91% 

U.S. Small Cap Equity 4.90% 0.08% 1.08% 

International Equity 6.60% 0.32% 1.07% 

U.S. Fixed 5.00% 0.20% 0.64% 

Stable Value 10.00% 0.23% 0.35% 

Lifecycle 59.70% 0.19% 0.95% 

Total 100.00% 

*Average Institutional share class net expense ratio as defined by the respective Mercer Mutual Fund Universe, which 

unlike the OPERS Funds, may include 12b-1 fees and other expenses. 12b-1 fees and other expenses are charged by 

mutual funds to pay for marketing, distribution, education, legal, custodial, transfer agent and other administrative costs 

and typically range from 0.15% to 0.35% of average annual assets. 

48




Mercer Investment Consulting provided the asset class return expectations listed below, which are based 

on their capital markets modeling assumptions. Those assumptions are based on forward looking total 

returns, fundamental data and valuation levels. The investment Staff does not attempt to incur tactical risk 

and rebalances the OPERS Investment Options quarterly if their allocations are outside their policy range. 

The returns listed below are neither predictions of, nor guarantees for, future performance. 

Asset Class and Target Date Fund Expected Return and Risk 

Asset Classes Return Risk* 

OPERS Stable Value Fund 4.3% 3.0% 

OPERS Bond Index Fund 4.8% 5.5% 

OPERS Bond Fund 4.8% 5.5% 

OPERS Stock Index Fund 8.3% 18.6% 

OPERS Large Cap Fund 8.2% 17.9% 

OPERS Small Cap Fund 8.4% 21.7% 

OPERS Non-U.S. Stock Index Fund 8.2% 18.6% 

OPERS Non-U.S. Stock Fund 


8.2% 18.6% 

OPERS Target Payout Fund 6.1% NA 

OPERS Target 2010 Fund 6.4% NA 










*Risk is defined in this table as the forward looking annualized standard deviation. 

49




Active returns are estimated by applying the performance objectives of the underlying funds to the target 

asset allocation of each Target Date Fund as listed previously in the Defined Contribution Fund’s Asset 

Allocation section. The performance objectives and tracking errors listed below are neither predictions of, 

nor guarantees for, future performance. The performance objectives of the OPERS Investment Options are 

defined by the member-directed fund policy, which provides a framework for the investment Staff to manage 

the funds. Staff is currently updating the Defined Contribution Fund and Member-Directed Fund policies for 

2010, which may result in changes to performance objectives and tracking error. 

Expected Active Return and Risk 


Performance 

Objective Tracking Error 

(bps) 

(bps) Information Ratio 

OPERS Target Payout Fund 3 25 0.10 

OPERS Target 2010 Fund 2 28 0.07 












Under 

Management 

($ millions) Benchmark 

50 

Performance 

Objectives 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

OPERS Stable Value Fund $25.5 Custom SV* 10 NA NA 

OPERS Bond Index Fund $46.3 Barclays Aggregate 0 25 0.00 

OPERS Bond Fund $67.8 Barclays U.S. Universal 30 70 0.43 

OPERS Stock Index Fund $56.8 Russell 3000 0 15 0.00 

OPERS Large Cap Fund $46.3 Russell 1000 0 25 0.00 

OPERS Small Cap Fund $17.3 Russell 2000 0 75 0.00 

OPERS Non-U.S. Stock Index Fund $46.3 MSCI ACWI x U.S. 0 75 0.00 

OPERS Non-U.S. Stock Fund $87.2 MSCI ACWI x U.S. 50 250 0.20 

*Custom SV benchmark is previously defined in the Defined Contribution Composition of Investment Portfolio section.


Asset Class 

Strategies


ASSET CLASS STRATEGIES 

Tactical Outlook 

This tactical outlook provides the background and context for the asset class strategies and for 

consideration of biases between the asset classes for both the Defined Benefit and Health Care Funds. 

Following are overviews of the two components of the tactical outlook: the economic outlook and the 

investment outlook. The economic outlook was provided by the Board’s general investment advisor, Mercer 

Investment Consulting, in November of 2009. The investment outlook, provided by OPERS’ Investment 

Staff, is summarized by asset class. 

Economic Outlook 

Global economic growth is expected to be weak in the developed world, but gradually improving well 

into 2010. This recession was the worst downturn since the Great Depression. However, at this point, 

it appears to be ending. The emerging markets should have higher growth than the developed markets 

as is normally the case. 

We expect a recovery of growth to 2.2% in the U.S. in 2010. Our long run assumption for economic 

growth in the U.S. is 3.1%. 

Inflation should remain below average until mid-2010, when inflationary pressures are most likely to 

emerge. We expect inflation to be 2.0% in the U.S. in 2010. However, our long run projections have 

inflation rising above 3.0% in 2011 before gradually settling down into a range of 2.5% to 3.0%. Our 

long run average for inflation is 2.7% to 2.8%. 

Although the Fed promises to be vigilant about inflation, we believe it will delay tightening monetary 

policy, resulting in an uptick in inflation in 2011. 

The U.S. unemployment rate should rise to about 10% at the beginning of 2010 and then gradually fall 

throughout the year. We expect the unemployment rate to fall to 9.2% by the end of 2010. Employment 

is always a lagging indicator for the economy. It is expected to lag more than usual in this recovery. 

The U.S. dollar is competitively priced and should be a positive factor for growth, as it encourages 

agriculture and manufacturing exports. Due to lax monetary policy and large budget deficits, we expect 

the dollar to be pressured further downward in 2010. 

Mercer expects Treasury rates to remain muted in the next few months, but the middle of next year is 

probably a key inflection point for the economy. Corporate spreads have tightened to the point that they 

are consistent with below average growth. 

51



Investment Outlook 

Information gathered from a variety of sources was used to determine the investment outlook for 2010. 

Information considered includes Mercer’s outlook, research from investment banks, discussions with and 

research by, external investment managers, feedback from asset class advisors, discussions with peers 

and industry experts and academic and informational periodicals. 

U.S. Equity Outlook 

The U.S. equity market has recovered about halfway from its nadir, reached on March 9, 2009. The 

initial primary driver for the stock market recovery was a restoration of some confidence via inflows to 

the International Monetary Fund, thereby securing eastern Europe and its potential impact on many 

large European banks, and the U.S. Government’s implicit statement that none of the original grouping 

of stress-tested banks would be allowed to fail. These two actions coming within a short period of each 

other restored enough confidence to stem the onslaught of selling that was only picking up steam as 

each day brought further uncertainty. 

Since those difficult days in early March, the Standard & Poor’s 500 Index (S&P 500) of large U.S. 

companies has mounted an impressive 60% return at the time of this writing. Second quarter 2009 

earnings showed the significant extent of cost-reduction and restructuring achieved across corporate 

America. Companies were not only surviving, but they were also remaining competitive. With easy 

gross domestic product (GDP) comparisons for the next several calendar quarters, interest rates 

pegged at low levels due to the need for significant deleveraging, and the expected fruits of operating 

leverage benefits from revenue growth at recession’s end, the S&P 500 should continue to grind higher 

for a period of time. The markets have also benefitted from reduced net short-selling and even the 

return of capital that had fled the markets since their peak in October 2007. 

As with all post World War II cycles, achieving higher levels of GDP normally had the effect of taking up 

slack in the labor markets, leading to higher wages, more national employment and hence more 

confidence to take on more debt. This cycle is expected to be different. Debt growth is highly unlikely 

as deleveraging, once begun, normally takes years to accomplish. The expected drag on growth from 

debt repayments is likely to keep companies cautious in their hiring and inventory-building. As a result, 

it will be difficult for this cycle to take on the self-reinforcing characteristics of prior cycles. Our return 

expectations for 2010 and beyond are highly correlated to our view of GDP growth. We are looking for 

the S&P 500 to have a nice run up to the 1250-ish range in the first half of the year. If GDP growth 

continues, and even expands, we look for modest gains from there, perhaps into the 1350s range. On 

the other hand, if GDP growth stalls in first half of next year, we would look for a retracement back to the 

1100-1000 levels (where we were in October 2009). 

52



Non-U.S. Equity Outlook 

The global financial system is awash with excess savings and private sector credit demand is still weak. 

As a result, governments around the world have increased their borrowing and spending efforts to 

prevent price levels from falling and stimulate demand. This has produced a synchronized global 

recovery, which should help global equities to advance. However, business profitability is expected to 

be constrained due to the deleveraging of the U.S. consumer and a steadily rising savings rate. 

Emerging markets remain fundamentally attractive with long-term of growth rates in excess of those 

available in developed markets. 

U.S. dollar weakness, triggered by the prospect of sustained low interest rates and by increased U.S. 

Government debt issuance, is a concern longer-term. 

Global Bonds Outlook 

The majority of fiscal stimulus in response to the financial crisis is expected to be delivered in 2010, 

providing support for economic growth in the near term. Uncertainty surrounding the sustainability of 

economic growth without government stimulus will continue to weigh on the markets during the first half 

of 2010. 

With a benign inflationary environment for 2010, the Federal Reserve will likely maintain a low level of 

interest rates. However, it is possible to foresee initial monetary tightening in the second half of 2010, 

given an economic recovery. 

Demand for investment grade credit bonds will remain high throughout 2010, with reduced supply, the 

lack of a viable credit default swap market, declining default rates, and improving corporate profitability 

putting a ceiling on how high spreads can widen. 

Securitized assets will experience higher volatility than in 2009 due to the uncertainty surrounding the 

government’s continued financial support, and the eventual timing and magnitude of its withdrawal of 

crisis support from these markets. 

The Treasury yield curve is biased flatter. In the near term, low inflation and anchored short rates could 

provide the impetus for lower long-term interest rates and therefore, a bullish flattening of the yield 

curve. Later in the year, a steady flow of economic data confirming a recovery could result in short 

rates rising higher than long rates, subsequently leading to a bearish flattening of the yield curve. 

53



Private Equity Outlook 

Expected return for private equity is in the range of 4% to 12% with a target return of 8%. 

Corporate finance investments (sometimes called “Buyout”) should experience a continued slow pace of 

new investment activity as debt is still relatively limited and expensive. There are signs of improvement 

in the lending market, which should provide more attractive financing packages for new purchases, but 

a return to the level of investment activity experienced during 2005-2007 is not expected. Private Equity 

managers should develop alternative methods to invest in these markets. A few examples of expected 

investment strategies in 2010 are providing support-capital for balance sheet restructuring transactions, 

growth-capital to allow companies to take market share from weaker competitors, spin-outs of “orphan” 

business lines from larger conglomerates that need to raise cash, and the control of distressed 

companies through the conversion of debt-to-equity, post restructuring. 

The success of venture capital investments during 2010 will be subject to a recovery in the IPO market 

(initial public offering) as well as increased interest from larger corporations for strategic acquisitions, 

particularly in health care and information technology. Venture capital has experienced a decade of 

stagnant growth and limited success, yet the recent success of venture backed IPOs may bring new life 

to this market. 

Limited partners (LPs) like OPERS have not experienced the level of capital call activity expected as a 

result of the small amount of new investment activity. The bear market also limited distributions of 

capital back to LPs. Thus, there has been little change in invested levels. 

Many limited partners have a large amount of “unfunded commitments” that they may not be able to 

honor once capital calls resume in earnest. Secondary sales of limited partner interests should be 

robust during 2010 as limited partners sell some interests to raise cash or reduce this unfunded 

commitment liability they have. 

Real Estate Outlook 

Staff believes that the recession of 2007-2009 will provide OPERS with attractive commercial real 

estate investment opportunities in 2010, and perhaps beyond. 

There is currently a limited supply of new debt financing for commercial real estate, but an estimated $1 

trillion of commercial real estate debt is scheduled to mature over the next three years. This is a 

dichotomy that will need to be resolved, hopefully without crisis. 

Commercial real estate property fundamentals, occupancy and rental rates, continue to deteriorate. 

Staff believes that the combination of limited debt financing and anticipated continued decline in 

property cash flows will force owners to sell assets at discounted prices, and provide opportunities for 

patient, long-term investors such as OPERS. 

54



Public Equity 

The Public Equity asset class is comprised primarily of U.S. Equity and Non-U.S. Equity-like securities. The 

following table summarizes the exposure of U.S. Equity and Non-U.S. Equity within the Defined Benefit 

Fund. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Defined 

Benefit Benchmark 

Defined Benefit Public Equity 

Expected Performance and Tracking Error 

The following table summarizes the exposure of U.S. Equity and Non-U.S. Equity within the Health Care 

Fund. 

The following sections provide detailed explanations of the U.S. Equity and Non-U.S. Equity asset class 

strategies, composition and risk and return expectations. 

55 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error* 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

U.S. Equity $22,904.5 65.8% Russell 3000 20 32 0.68 $11.1 4.9 

Non-U.S. Equity $11,994.2 34.2% MSCI ACWI-xU.S. 75 115 0.66 $30.5 25.4 

*The tracking error ranges for U.S. Equity and Non-U.S. Equity are 20 - 100 bps and 80 - 300 bps, respectively. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Health Care Benchmark 

Health Care Public Equity 


Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error* 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

U.S. Equity $3,205.2 53.3% Russell 3000 20 32 0.68 $1.6 4.9 

Non-U.S. Equity $2,810.6 46.7% MSCI ACWI-xU.S. 75 115 0.66 $7.2 25.4 

*The tracking error ranges for U.S. Equity and Non-U.S. Equity are 20 - 100 bps and 80 - 300 bps, respectively.



U.S. Equity 

Strategy 

The objective for the U.S. Equity strategy is to obtain broad-based exposure to the U.S. Equity market and 

to outperform the benchmark while managing return volatility relative to the benchmark. The public equity 

policy provides a strategy framework that allows flexibility for moving assets between portfolios and for 

managing allocations to managers with similar risk levels in the same category. This approach also 

specifically acknowledges that different strategies entail different levels of risk. 

While the U.S. Equity market is considered an efficient asset class, the strategy facilitates building portfolios 

of managers with a high probability of achieving return targets rather than focusing only on risk control. It 

also allows for an opportunistic approach for identifying managers with high alpha potential within the active 

management category. 

Portfolio Allocation 

The U.S. Equity asset class is comprised of three categories of managers: index, enhanced index and 

active. The allocation to the index category is a key risk control component of the asset class, although it is 

expected be reduced somewhat, in an effort to garner more excess return. Indexing, otherwise known as 

passive management, is a portfolio management approach for gaining index or beta exposure to the asset 

class and exhibits very low tracking error of 0 to 50 basis points (a basis point is a hundredth of a percent). 

Tracking error is a measure of a portfolio’s variability of returns relative to that of its benchmark (i.e., how 

much more volatile is the portfolio than the index). 

”Enhanced” index managers employ a risk-controlled approach with the portfolios exhibiting low to 

moderate levels of tracking error, principally by holding as many as half or more of all stocks in the index. 

The tracking error of an enhanced index strategy is generally expected to be in the range of 50 basis points 

(0.50%) to 250 basis points (2.50%). The enhanced index category is comprised of managers that have 

diversified sources of alpha from three general strategic approaches. A risk-controlled, quantitative 

approach is employed by three managers (Goldman, Barclays and Piedmont). PIMCO is a synthetic 

enhanced index portfolio, which holds equity index futures to obtain equity market exposure while investing 

the remaining cash in short-term, fixed income securities. The internal enhanced portfolio is a low-tomedium 

risk fundamental analysis strategy managed by U.S. Equity Internal Management Staff. 

The tracking error range for active managers is expected to be 250 basis points (2.50%) to 800 basis points 

(8.00%) or more. The active portion of our U.S. Equity allocation is currently spread among five managers, 

with two managers being funded in 2007 for the manager of minority manager program. Leading Edge and 

Progress are fund of funds programs each comprised of minority managers and were initially funded with 

allocations of $75 million and $50 million, respectively. Leading Edge and Progress have manager 

selection and allocation authority and currently use twelve and seven managers in their line-ups, 

respectively. 

56



Performance Objectives and Risk Control 

The U.S. Equity asset class benchmark is the Russell 3000 Index, which is a broad-based index of large 

and small companies, substantially comprising in dollar value the investable U.S. Equity universe. OPERS’ 

allocations among the indexed, enhanced index and active management categories are managed to 

optimize the risk and return profile of the asset class portfolio. The composition of the asset class will 

continue to be assessed to determine the appropriate managers and the optimal allocations to achieve the 

performance objective while working within an allotted risk budget. 

The outperformance objective or alpha expectation for 2010 for the aggregate U.S. Equity asset class 

composite is 20 basis points, as shown in the accompanying table. The allocations among the portfolios, 

which have varying degrees of expected alpha, determine the aggregate alpha expectation. The sources of 

outperformance are from the enhanced index and active management categories. The expected alphas for 

these managers fall in the 47 to 178 basis point range. The alpha expectations are based on the 

confidence level for each manager as well as the outlook for the specific strategy that each employs. 

The asset class tracking error is determined by a risk budgeting process and an analysis of historical and 

expected manager tracking errors versus their respective index and the overall asset class benchmark. 

Tracking error expectations are established for each portfolio and each category of portfolios (index, 

enhanced and active) resulting in an overall portfolio that has a risk budget that remains below the U.S. 

Equity policy limit of 70 basis points and is targeted at 32 basis points. 

The benefit of diversification among managers, manager strategies and manager benchmarks results in a 

lower tracking error estimate than would be computed by a simple weighted average of the individual 

portfolio tracking errors. Therefore, despite tracking error estimates for a manager of up to 800 basis 

points, the asset class tracking error target is quite low at 32 basis points. The tracking errors of the asset 

class, categories and individual portfolios are monitored on a regular basis to assess changes in manager 

and portfolio behavior as well as to compare with the targets described in this Annual Investment Plan. 

The Internal Russell 2000 and Internal Russell 1000 portfolios are index-oriented and employ the use of 

derivatives such as futures. They are used in tandem for tactical asset allocation at the total fund level for 

managing U.S. Equity exposure, as well as at the asset class level for managing small capitalization and 

large capitalization exposure. The accounts are also used for conducting transition of funds between 

managers or the transfer of assets into or out of the asset class. The use of derivatives and the expertise of 

internal Fund Management Staff and the equity trading department allow Staff to often transition U.S. Equity 

assets in-house in a very cost effective and operationally efficient manner. 

The portfolio composition and strategic allocation are managed to achieve an attractive risk-adjusted return. 

A measure of the risk-return efficiency of a portfolio is the information ratio. The aggregate portfolio 

outperformance and tracking error are used to calculate the information ratio. The calculation is expected 

alpha divided by tracking error. The 2010 U.S. Equity portfolio is expected to have an information ratio of 

0.68. The following schedule shows this risk-adjusted performance objective, the tracking error target for 

each portfolio and the corresponding active return expectations. 

57



The allocations of the Defined Benefit Fund starting in 2010 will require transitioning assets out of the U.S. 

Equity asset class while continuing to achieve the outperformance objective within the stated risk parameters. 

Average 

Assets Under 

Management 

($ millions) 

U.S. Equity 


% of 

Total 

U.S. 

Equity Benchmark 

Portfolio Composition 

The table below is a summary of the allocations for the U.S. Equity portfolio, showing the internal and 

external management and the active (including enhanced index) and passive asset allocations. 

58 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual 

Fee 

($ millions) 

Estimated 

Annual 

Fee 

(bps) 

Index 

Internal R3000 $17,101.9 65.5% Russell 3000 4 9 0.40 $0.2 0.1 

Internal R2000 522.2 2.0% Russell 2000 0 15 0.00 0.1 2.0 

Internal R1000 156.7 0.6% Russell 1000 0 35 0.00 0.1 3.5 

Total Index 

Enhanced Index 

17,780.7 68.1% Russell 3000 4 10 0.36 0.4 0.2 

Internal Enhanced 3,942.6 15.1% Russell 1000 47 125 0.38 1.8 4.5 

BGI 1,671.0 6.4% Russell 1000 44 100 0.44 2.7 16.4 

Piedmont 130.5 0.5% S&P 500 57 150 0.38 0.2 17.6 

Goldman Sachs 1,227.2 4.7% S&P 500 74 150 0.49 1.9 15.8 

PIMCO 652.7 2.5% S&P 500 50 125 0.40 1.6 25.0 

Total Enhanced Index 

Active 

7,650.2 29.3% 51 90 0.57 8.3 10.9 

Leading Edge MOMM 130.5 0.5% Russell 3000 41 250 0.16 0.8 58.4 

Progress MOMM 26.1 0.1% Russell 3000 20 200 0.10 0.2 60.0 

Invesco 235.0 0.9% Russell 2000 72 300 0.24 1.1 47.2 

Pyramis 313.3 1.2% Russell 2000 178 800 0.22 1.9 61.6 

Total Active 678.9 2.6% 116 450 0.26 4.0 58.3 

Total U.S. Equity $26,109.7 100.0% Russell 3000 20 32 0.68 $12.7 4.9 

Estimate of Internal/External and Active/Passive Composition 

Est. Mid-Year 2009 Est. Mid-Year 2010 

Active Passive Total Active Passive Total 

Internal 19.2% 65.5% 84.7% 15.1% 68.1% 83.2% 

External 15.3% 0.0% 15.3% 16.8% 0.0% 16.8% 

Total 34.5% 65.5% 100.0% 31.9% 68.1% 100.0%




Strategy 

OPERS’ seeks to obtain exposure to Non-U.S. Equities across both developed and developing markets to 

diversify plan assets and enhance return. To achieve this, the portfolio invests in both passive and active 

management strategies, with a bias towards active strategies. The active and enhanced allocations are 

approximately 80% of the portfolio and take advantage of the historical ability of active managers to 

generate excess returns in this asset class. The passive allocation is approximately 20% and produces risk 

controlled, inexpensive, broad market exposure. 

Internal management of the asset class through the use of derivatives is authorized. Currently, the program 

is 100% externally managed. External managers are selected in accordance with the OPERS External 

Manager Search Policy for their expertise, risk management skill and ability to add excess returns above 

the benchmark return. The asset class benchmark is the Morgan Stanley Capital International All Country 

World excluding the United States Standard Index (MSCI ACWIxU.S.), unhedged, and net of dividends. 

Portfolio Allocation 

While it is Staff’s responsibility to monitor and manage the risk that the sum total of individual manager 

performances exceeds the performance of the asset class benchmark, individual managers are sometimes 

assigned a benchmark narrower than the one for the asset class. The Non-U.S. Equities portfolio is 

composed of 14 different externally managed portfolios benchmarked to four distinct indexes: the MSCI 

ACWIxU.S., the MSCl Europe, Australasia and Far East Standard Index (MSCI EAFE), the MSCI Emerging 

Market Index (MSCI EM) and the MSCl World excluding U.S. Small Cap Index (MSCIWxU.S.Small Cap). 

Most managers have the same benchmark of the asset class. 

Active managers benchmarked to the MSCI EAFE Index invest almost exclusively in international 

developed markets. Managers within the MSCI ACWIxU.S. category are permitted to invest in both 

developed and emerging markets up to a prescribed guideline limit. The portfolio targets a high allocation 

to these types of managers. There is a strategic allocation to dedicated emerging market managers that 

targets a much smaller portion of total portfolio value. Finally, the portfolio has a small target allocation to 

dedicated international small cap managers. 

As of September 30, 2009, the Non-U.S. Equity asset class was approximately $14 billion. The portfolio 

tracking error was under 130 basis points (1.30%) and the portfolio was overweight small cap, active versus 

passive investment strategies and emerging markets versus its benchmark. 

59




The benchmark for the total Non-U.S. Equity asset class is the MSCI ACWIxU.S. Index and the portfolio is 

expected to outperform this benchmark by at least 75 basis points (0.75%) over a three-to-five year market 

cycle, net of fees. Investment Staff, using risk budgeting and other techniques, determines the asset class 

tracking error, or active risk. The tracking error is projected to be 115 basis points (1.15%) in 2010 given 

the current portfolio positioning and market volatility. As a result, an information ratio of 0.66 is expected, 

which is consistent with other asset classes. 

The following table illustrates each existing portfolio, expected performance objectives, and forecasted 

contribution to the total asset class returns. 

Average 

Assets Under 

Management 

% of 

Total 

Public 



Performance 

Target 

Objectives Tracking Target Estimated 

(net of fees) Error Information Annual Fee 

Estimated 

Annual Fee 

($ millions) Equity Benchmark (bps) (bps) Ratio ($ millions) (bps) 

Index 

BGI Index $2,590.8 17.5% ACWIxU.S. 13 25 0.52 0.8 3.0 

Total Index 

Active ACWIxU.S./EAFE 

2,590.8 17.5% ACWIxU.S. 13 25 0.52 0.8 3.0 

Acadian Core 695.8 4.7% ACWIxU.S. 144 400 0.36 2.2 31.5 

Alliance Bernstein 6.9% ACWIxU.S. 45 350 0.13 3.5 34.2 

Baring 1,228.8 8.3% ACWIxU.S. 73 200 0.37 1.7 14.2 

BGI Enhanced 3,405.1 23.0% ACWIxU.S. 52 100 0.52 4.7 13.9 

Brandes 1,273.2 8.6% ACWIxU.S. 167 700 0.24 4.7 37.1 

JP Morgan 1,065.9 7.2% ACWIxU.S. 50 300 0.17 4.0 37.9 

LSV 547.8 3.7% EAFE 84 350 0.24 2.3 41.8 

TT International 651.4 4.4% ACWIxU.S. 62 450 0.14 2.6 39.2 

Walter Scott 4.3% EAFE 137 800 0.17 2.5 39.2 

Total Active ACWIxU.S./EAFE 

Active Emerging Mkts 

10,526.2 71.1% 81 150 0.54 28.3 26.9 

Acadian Emerging 370.1 2.5% Emerging 127 500 0.25 1.9 50.6 

Lazard 384.9 2.6% Emerging 170 600 0.28 1.5 40.0 

T Rowe Price 444.1 3.0% Emerging 107 500 0.21 3.3 74.4 

Total Active Emerging Mkts 

Active Small Cap 

1,184.4 8.0% Emerging 135 350 0.39 6.7 56.7 

Acadian Small Cap 503.4 3.4% Small Cap 138 500 0.28 1.9 38.0 

Total Active Small Cap 503.4 3.4% Small Cap 138 500 0.28 1.9 38.0 

Total Non U.S. Equity $14,804.8 100.0% ACWIxU.S. 75 115 0.66 $37.7 25.4 

60




The structure and risk profile of the program has remained virtually the same as that outlined in the 2009 

Annual Investment Plan. The increased allocation will prompt Staff to consider adding managers and 

further exploring the passive management of Non-U.S. Equities internally through the use of derivatives. 




Internal 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 

External 79.7% 20.3% 100.0% 82.5% 17.5% 100.0% 

Total 79.7% 20.3% 100.0% 82.5% 17.5% 100.0% 

61




Strategy 

The Global Bonds asset class is composed of one composite, containing multiple underlying portfolios, and 

three dedicated portfolios, each with a specific purpose: 

Global Bonds Universal composite: Provides broad exposure to fixed income assets through multiple 

underlying portfolios, 

Long Duration portfolio (managed internally): Dedicated elements of asset-liability matching against 

long-term liabilities, 

Treasury Inflation Protected Securities (TIPS) portfolio (managed internally): Dedicated hedge against 

inflation in health care costs; and 

Short Duration portfolio (managed internally): Dedicated liquidity for the Health Care Fund. 

The Global Bonds asset class uses both internal and external portfolio management. The majority of 

assets are internally managed. Internally managed portfolios employ fundamental, active, benchmarkfocused 

strategies covering the broad U.S. Fixed Income market. External managers are used 

predominately for the high yield and emerging market debt sectors. 

Global Bonds Universal Composite—Defined Benefit and Health Care Funds 

The Global Bonds Universal Composite is managed against the Barclays Universal Index and includes 

Core, High Yield and Emerging Market Debt portfolios. Both the Defined Benefit and Health Care Funds 

have assets allocated to the Universal Composite. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Defined 

Benefit Benchmark 

Defined Benefit Public Fixed Income 


62 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error* 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

Core Fixed $7,106.8 56.2% Barclays Agg 23 75 0.31 $0.8 1.1 

Long Bonds 5,492.2 39.3% Barclays Long G/C 15 100 0.15 0.4 0.7 

High Yield 808.7 3.3% Barclays HY 82 325 0.25 3.5 43.4 

Liquidity $543.7 1.2% 3-Month T-Bill 0 30 0.00 $0.3 5.4 

*The tracking error ranges for Defined Benefit Public Fixed Income is 0 - 200 bps.



Health Care Public Fixed Income 


Average 

Assets % of 

Performance Target 

Estimated 

Under Total 

Objectives Tracking Target Estimated Annual 

Management Health 

(net of fees) Error InformationAnnual 

Fee Fee 

($ millions) Care Benchmark (bps) (bps) Ratio ($ millions) (bps) 

Core Fixed $1,359.2 27.8% Barclays Agg 23 75 0.31 $0.2 1.1 

TIPS 2,342.3 48.0% Barclays TIPS 15 50 0.30 0.1 0.5 

Short Duration 574.6 20.6% Barclays Short G/C 25 75 0.33 0.2 3.9 

High Yield 144.6 1.8% Barclays HY 82 325 0.25 0.6 43.4 

Emerging Market Debt 386.8 1.8% Barclays EMD 156 385 0.41 1.8 45.6 

Liquidity $74.1 0.0% 3-Month T-Bill 0 30 0.00 $0.0 5.4 

*The tracking error ranges for Health Care Public Fixed Income is 0 - 200 bps. 

The following sections provide details about each individual fixed income investment strategy. 

Core Fixed 

Internal Staff manages the core assets, with a small portfolio exception. Core portfolios seek to outperform 

the benchmark using a diversified set of alpha sources but primarily using sector and security selection. 

The Internal Core portfolio emphasizes diversification, liquidity and low volatility versus the benchmark. 

The Internal Core portfolio has an excess return target of 23 basis points and a tracking error of 75 bps. 

There is one external core bond manager is the AFL-CIO Housing Investment Trust. This manager seeks 

to generate a competitive risk-adjusted return by investing primarily in multi-family and single-family 

mortgage backed securities insured or guaranteed by the U.S. Government. The other primary objective is 

to encourage the construction of affordable housing and the employment of union members. The 

performance objective is to generate a 40 basis point excess return over the Barclays Aggregate Index. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Core Fixed Benchmark 

Core Fixed 


63 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

Internal Core $ 8,356.7 98.7% Barclays Agg 23 75 0.31 $0.6 0.7 

AFL-CIO 109.3 1.3% Barclays Agg 40 75 0.53 0.4 35.0 

Total $8,466.0 100.0% Barclays Agg 23 75 0.31 $1.0 1.1



High-Yield Debt 

High-yield securities represent approximately 6% of the Lehman Brothers Universal Index. The 

outperformance comes from security selection, which is supported by labor-intensive credit research. 

High-yield securities are bonds that are rated below investment-grade at the time of purchase. These bonds 

have a higher risk of default, but typically pay sufficiently higher yields than investment-grade bonds in order 

compensate for losses and still make them attractive to investors. OPERS high yield exposure is currently 

100% externally managed by three external managers: Fort Washington, Goldman Sachs Asset 

Management and Post Advisory. All three managers seek to outperform their performance benchmark by 

engaging in fundamental credit research. To take advantage of opportunities in this sector, portfolio guidelines 

are formulated to give these managers broad discretion to invest throughout the high-yield universe. 

The increased allocation to high yield will result in the addition of external managers in 2010 and further 

consideration of ways to internally manage some of this allocation, such as though derivatives exposure. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

High 

Yield Benchmark 

High Yield 


64 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

Fort Washington $253.0 26.5% Barclays HY 95 400 0.24 $0.6 25.0 

Goldman Sachs 460.3 48.3% Barclays HY 40 300 0.13 2.3 50.0 

Post 239.9 25.2% Barclays HY 150 500 0.30 1.2 50.0 

Total $953.3 100.0% Barclays HY 82 325 0.25 $4.1 43.4



Emerging Market Debt 

Emerging market debt is a term used to encompass bonds issued by developing countries. Emerging 

market debt tends to have a lower credit rating (and thus a higher yield) than other sovereign debt because 

of increased economic, political, and currency risks. To gain exposure to this type of debt, OPERS employs 

two external managers – Stone Harbor and Capital Guardian – who primarily add value through country 

selection. The role of emerging markets debt is evolving under the new allocations for the Defined Benefit 

and Health Care Funds, and Staff will be proposing policy adjustments to the Board for 2010 and possibly 

adding more managers. 

Average 

Assets Under 

Management 

($ millions) 

Total 

Emerging 

Market 

Debt Benchmark 

Emerging Market Debt 


65 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual Fee 

(bps) 

Capital Guardian $ 218.0 56.4% Barclays EM 204 500 0.41 $1.0 46.0 

Stone Harbor 168.8 43.6% Barclays EM 95 350 0.27 0.8 45.0 

Total $386.8 100.0% Barclays EM 156 385 0.41 $1.8 45.6



Dedicated Portfolios 

Long Duration – Defined Benefit Fund 

The internally managed Long Duration portfolio was implemented in 2007 as a result of the review of the 

Defined Benefit Fund asset allocation completed in 2006. The review recommended that 40% of Defined 

Benefit Fund’s global bond assets be in the Long Duration portfolio, with the remaining 60% in the Universal 

Composite. The latest allocation reduces the proportion slightly, to 36%. The portfolio is designed to meet 

or exceed the return of the Barclays Long Government/Credit Index with a low level of tracking error. The 

primary sources of outperformance for the fund are sector rotation and security selection. 

Treasury Inflation Protected Securities (TIPS) 

The internally managed TIPS portfolio started in 2005 as a result of the segregation of the Defined Benefit 

and Health Care Funds. The portfolio is designed to meet the return of the Barclays TIPS Index with a low 

level of tracking error. 

Short Duration 

The Short Duration portfolio was started in 2005 as a result of the segregation of the Defined Benefit and 

Health Care Funds. The portfolio is structured to meet or exceed the return of the Barclays 1-3 Year 

Government Bond Index with a low level of tracking error. The primary sources of outperformance are 

sector rotation and security selection. 

Liquidity Allocation 

The new Defined Benefit Fund allocation adds a liquidity pool. Policies are being developed and will be 

proposed to the Board for 2010. 

66




The Defined Benefit Fund and the Health Care Fund recently adopted a new policy mix for fixed income 

and will be transitioning towards the new target allocations in 2010. 

In the past, OPERS has used a single broad benchmark for the fixed income asset class. In general, broad 

benchmarks are preferable when allocating to asset classes because they capture the full measure of the 

securities available for investment. Broad benchmarks also allow the greatest flexibility to add value during 

implementation while investing. However, and due in no small measure to the credit crisis of 2007-08, best 

practices in fixed income allocations increasingly recognize that using benchmarks which simply reflect the 

fixed income universe “as is” are sub-optimal. Fixed income is no longer seen as one monolithic asset 

class, driven solely or predominantly by changes in interest rates. 

Sub-optimization occurs because of the capitalization weighting of indexes. The more money an entity 

borrows, the less worthy its credit is. Yet, the more money an entity borrows, the larger a portion of its 

benchmark it becomes. Then, in designing fixed income portfolios which manage tracking error versus 

benchmarks, the larger an entity is in the index, the more OPERS is induced to buy. An optimal portfolio 

limits the amount invested in the riskiest assets rather than adding to them just because tracking error 

discipline induces it. This is what we mean when we say capitalization weighting alone sub-optimizes. 

This same pattern of “chasing the issuance of bonds” applies to whole fixed income sectors like Treasuries, 

Agencies and Corporates. So, for example, the more “Subprime” debt that is issued, the more of it one 

needs to buy in order to minimize tracking error to such a benchmark. 

Therefore, in order to identify and invest in the fixed income characteristics (interest rates, credit, highly 

liquid, inflation-linked, etc.) which improve portfolio efficiency, OPERS is unbundling from the broad fixed 

income benchmark and allocating to narrower benchmarks. These are the same benchmarks that are 

components of the broad fixed income benchmark; however, our allocation weights them differently. 

So, while OPERS may still allocate to “Subprime,” the allocation target cannot grow without a conscious 

decision to change it. Before, OPERS’ allocation target would grow simply if the issuance of “Subprime” 

grew. 

Beginning with the 2010 allocation, there are no overall benchmarks for each fund, but the Board’s 

individual bond allocations will each have their own sector benchmark, risk controls and performance 

objectives. In the Defined Benefit Fund these include Core Fixed, Long Bonds, High Yield and a Liquidity 

Reserve. In the Health Care Fund these include Core Fixed, TIPS, High Yield, Emerging Market Debt and 

a Liquidity Reserve. 

67




The following is a summary of the allocation of the Global Bonds portfolio between internal and external 

managers: 




Internal 90.5% 0.7% 91.2% 92.3% 0.0% 92.3% 

External 8.8% 0.0% 8.8% 7.7% 0.0% 7.7% 

Total 99.3% 0.7% 100.0% 100.0% 0.0% 100.0% 

68



Securities Lending 

The Securities Lending program uses a combination of lending agents to optimize the incremental return 

from this investment strategy. This move towards the diversification of agents coincides with the increase in 

lending revenue for OPERS in recent years. OPERS seeks agents who provide competitive fee splits, 

while providing adequate risk controls and segment expertise in the asset class being loaned. 

There is a bias toward lending assets in an auction environment so that borrowers are providing maximum 

return in a competitive environment on a regular basis. 

The Securities Lending program currently has the following structure: 

Total Assets 

($ billions) 

Cash Management 

The cash portfolios exhibit a low-to-moderate risk profile that results in principal preservation, while 

exceeding the performance of the respective benchmarks. The benchmark of the OPERS Short Term 

Investment Funds (STIF) is the 91-day Treasury bill. The benchmark for the Securities Lending STIF is the 

Fed Funds Open Rate. Each portfolio is run separately, with Staff targeting assets that are most likely to 

generate performance above the respective portfolio benchmarks. 

69 

Securities Lending Structure 

Average 

Lendable 

($ billions) Lending Agent Auction 

U.S. Equity $22.4 $20.4 eSecLending x 

Global Bonds 16.1 

Corp Bonds 4.8 eSecLending x 

Emerging Market Debt 1.6 State Street 

Treasuries 5.6 State Street 

Agencies 0.8 State Street 

FNMA 1.0 eSecLending x 

FHLMC/GNMA 0.8 Key Bank 

Non U.S. Equity 11.8 

Commingled Assets 4.8 BGI 

Separate Account Assets $4.2 State Street



Alternatives 

The Alternatives asset class is composed of private equity, real estate, hedge funds, infrastructure and 

commodities investment strategies. The Defined Benefit and Health Care Funds invest differently in the 

Alternatives asset class to meet their unique investment objectives. 

The following table summarizes the alternative investment strategies utilized within the Defined Benefit 

Fund. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Defined 

Benefit 

Alternatives Benchmark 

Defined Benefit Alternatives 


The following table summarizes the alternative investment strategies utilized within the Health Care Fund. 

The following sections provide details about each Alternatives investment strategy. 

70 

Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error* 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual 

Fee 

(bps) 

Private Equity $2,777.1 36.7% Russell 3000 + 3% 100 750 0.13 $74.0 266.3 

Real Estate 


5,210.0 53.0% NCREIF 0 600 0.00 56.5 108.4 

Hedge Funds 754.3 8.3% Custom** 0 300 0.00 5.6 74.8 

Infrastructure $176.7 1.9% CPI + 5% 0 300 0.00 $2.9 166.1 

*The tracking error ranges for Defined Benefit Alternatives is 0 - 600 bps. 

**The Defined Benefit Opportunistic/Hedge Funds custom benchmark is a blend of LIBOR + 4% and 10%. 

Average 

Assets Under 

Management 

($ millions) 

% of 

Total 

Health Care 

Alternatives Benchmark 

Health Care Alternatives 


Performance 

Objectives 

(net of fees) 

(bps) 

Target 

Tracking 

Error* 

(bps) 

Target 

Information 

Ratio 

Estimated 

Annual Fee 

($ millions) 

Estimated 

Annual 

Fee 

(bps) 

REIT 


$708.1 78.9% U.S. REIT 50 200 0.25 $0.3 3.9 

Hedge Funds 171.7 2.0% Custom** 0 300 0.00 0.8 45.3 

Commodities $17.9 19.1% SPGSCITR 0 300 0.00 $0.0 19.0 

*The tracking error ranges for Health Care Alternatives is 0 - 300 bps. 

**The Health Care Opportunistic/Hedge Funds custom benchmark is a blend of LIBOR + 4% and Barclays High Yield Index.




Investment Strategy 

OPERS seeks to maintain a top-tier Private Equity program that generates attractive, risk-adjusted longterm 

returns. The following information details the short and long-term strategic efforts for achieving this 

objective. 

Beginning in 2010, the Board approved an increase in the target private equity allocation for the Defined 

Benefit Fund from 5% to 10%. As of June 30, 2009, the actual allocation was 4.1%, which was well 

beneath both the prior allocation target of 5% and the revised target of 10%. It is expected to take 5-years 

or longer to reach this new target assuming general economic activity resumes a more normal state 

following the significant economic downturn and excessive market swings experienced in 2008 and 2009. 

In addition to the traditional approach to portfolio construction (building a concentrated portfolio of new 

commitments to a few managers), Staff will be considering other approaches to building allocation to the 

asset class if they can be accomplished without fundamentally altering the program’s established strategy. 

These tactical approaches may be especially appropriate in the current environment and are intended to 

reduce execution risk, shorten the holding period for investments, mitigate the impact of the J-Curve, while 

providing the program with attractive risk-adjusted returns. 


OPERS Private Equity performance is benchmarked on a long-term, 7-10 year, rolling basis against the 

Russell 3000 plus 300 basis points using the internal rate of return (IRR) cash flow methodology. 

Risk Management 

Risk management within private equity is based on portfolio parameters designed to control: 

Liquidity 

Vintage Year Risk 

Manager Concentration Risk 

Firm Risk 

Currency 

Industry 

Geography 

Leverage 

71



Actual vs. Targeted Portfolio Composition 

The Private Equity portfolio had an unaudited market value of $2,147 million as of June 30, 2009 and 

included approximately $2 billion in unfunded commitments to existing managers. The Private Equity 

portfolio will continue to be built over time and balances the need for exposure with available opportunities 

and vintage year risk. The following table displays the actual diversification of the portfolio by strategy and 

geography based on the fair market value of the underlying funds. 

Corporate Finance 

Venture Capital 

Special Situations 

Total 

Actual 

61.3% 

14.3% 

12.3% 

87.9% 

Domestic International Total 

Target +/- Actual Target +/- Actual Target 

45.0% 

10.0% 

10.0% 

65.0% 

16.3% 

4.3% 

2.3% 

22.9% 

It is anticipated that the special situations allocation may grow to near 20% over the next few years as most 

opportunities in today’s environment fall within this class. The geographic allocation differences versus the 

target in the table above are the result of assigning managers to domestic or international, rather than using 

a global category. The following table displays the geographic allocation based on the fair market value of 

the underlying portfolio companies. 

Domestic 

International 

Total 

Actual 

68.3% 

31.7% 

100.0% 

Target 

65.0% 

35.0% 

100.0% 

+/- 

3.3% 

-3.3% 

0.0% 

72 

10.9% 

0.0% 

1.3% 

12.1% 

30.0% 

0.0% 

5.0% 

35.0% 

-19.1% 

0.0% 

-3.7% 

-22.9% 

72.2% 

14.3% 

13.6% 

100.0% 

75.0% 

10.0% 

15.0% 

100.0% 

+/- 

-2.8% 

4.3% 

-1.4% 

0.0%

$ millions 

$ billions 

2,500 

2,000 

1,500 

1,000 

500 

0 

16.00 

14.00 

12.00 

10.00 

8.00 

6.00 

4.00 

2.00 

0.00 

0.2 0.3 



Commitment Pacing 

Multi-factor models are used to determine the rate of commitments to achieve the target market value 

exposure over the target period of time. The graph below depicts the updated investment-pacing model in 

millions of dollars per year to achieve a 10% target for the Defined Benefit Fund. The pacing model 

estimates that the Defined Benefit Fund will reach the desired market value exposure by year-end 2014. 

These pacing estimates may vary from year to year depending on realized performance and market 

conditions. Vintage year is the year in which a partnership makes its first investment; this sometimes differs 

from the year in which OPERS makes its commitment. The information below shows the actual and 

projected commitments made each year, rather than vintage year commitments. 

0.6% 0.7% 0.7% 0.8% 

Actual Aggregate 

Commitments 

Annual Commitment Pacing 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 

0.7 0.3 

1.4 

0.4 

1.4% 

2.1% 

3.2% 

Actual Annual Commitments Projected Annual Commitments 

2.1 

0.8 

2.9 

1.4 

FMV and Commitment Growth 

3.8 

2.3 

4.5 

2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 

Actual FMV Projected Aggregate 

Commitments 

73 

2.5 

4.3% 4.4% 4.4% 

4.9 

2.2 

6.9 

2.5 

4.4% 

8.9 

3.3 

7.3% 

10.9 

Projected FMV 

4.4 

8.6% 

12.9 

9.8% 

5.5 

16.0% 

14.0% 

12.0% 

10.0% 

8.0% 

6.0% 

4.0% 

2.0% 

0.0% 

14.9 

6.6



Commitments in 2010 

The 2010 investment pacing targets $2,000 million in commitments. The expectation is that the number of 

commitments will be between 11 and 16. The size of commitments is expected to range between $75 and 

$350 million, depending on the strategy. 

Corporate Finance 

Venture Capital 

Special Situations 

Fund of Funds 

Ranges 

Domestic 

Anticipated Commitments in 2010 ($ millions) 

International Total 

250 - 750 

0 - 200 

300 - 750 

0 - 75 

420 - 1,120 

General Partners 

General partner selection is critical for out-performance and Staff proactively seeks relationships with 

experienced, top-tier general partners. Working with the private equity advisors, peers and all available 

resources, Staff filters and reviews the general partners in each subclass and initiates a dialogue regarding 

potential participation in their new partnerships. Further, Staff limits exposure to first-time general partners. 

The private equity general partner selection procedures describe the due diligence process and factors for 

consideration. 

The vast majority of our commitments will be through primary participation in general partnerships. This is 

so that partnership rights can be fully exercised and Staff can participate in all meetings and actively 

monitor partnerships. 

Asset Management Fees 

The following table estimates the private equity asset management fees for 2009. Note that private equity 

fees relative to market value are skewed in formative years due to the lag between commitments and 

investments. Significant portions of the fees are recoverable before general partners receive carry. 

Estimate of Management Fees - 2010 ($ millions and bps) 

Estimated Average Commitments $5,920 

Estimated Average Market Value $2,777 

Estimated Average Fee 1.25% 

Estimated Management Fee ($ millions) $74.0 

Estimated Management Fee (bps) 266 

74 

0 - 250 

0 - 0 

0 - 250 

0 - 250 

0 - 460 

250 - 1,000 

0 - 200 

300 - 1,000 

0 - 325 

1,500 - 2,500



Real Estate 

Private Markets 

Market Conditions and Outlook 

Staff believes that the recession of 2007-2009 will provide OPERS with attractive commercial real estate 

investment opportunities in 2010. To raise the needed capital, Staff further believes that owners will be 

incented to sell their highest quality and most desirable properties first. OPERS should have the 

opportunity to acquire high quality properties at attractive prices. 

There is an estimated $1 trillion of commercial real estate debt scheduled to mature over the next three 

years. There is currently a limited supply of new debt for commercial real estate. Many owners will not be 

able to refinance the balances owed on maturing loans because of tighter lending standards and lower 

anticipated property level cash flows. 

Commercial real estate property fundamentals, occupancy and rental rates, continue to deteriorate. Staff 

believes that property level cash flows may continue to deteriorate for the next two years because of this 

combination of lower occupancy and rental rates. From 2002 to mid-2007, abundant and inexpensive debt 

and equity capital led to increased commercial real estate prices. Capitalization rates (caps, or cap rates) 

for stabilized assets, historically in the range of 7.50% to 8.25%, fell to a range of 4.75% to 6.25%. Staff 

anticipates that the market will over-correct and that high quality properties will trade at caps in the range of 

8.00% to 9.50%. The consensus opinion anticipates that the 2010 total return for the NCREIF Property 

Index (NPI) will be a negative 8%, according to the total return swap derivative pricing found on Markit.com. 

The consensus view is that while commercial real estate prices continue to decline, investors should “sit on 

the sidelines” until property fundamentals begin to improve. 

75



Investment Strategy and Portfolio Construction 

The Private Market Real Estate program consists of a stable, or beta portfolio and a high-return, or alpha 

portfolio. The Beta portfolio is comprised of stable cash-flowing core properties and constitutes no less 

than 65% of the Private Market Real Estate portfolio, according to the Real Estate policy. The high-return 

alpha portfolio consists of all private market real estate investments that are not in the beta portfolio. The 

high-return portfolio includes both U.S. and Non-U.S. Real Estate investments. The alpha strategy may 

include investments in non-core real estate activities such as development, redevelopment or repositioning 

of all property types. The following graph shows to composition of the private market portfolio by 

investment style as of June 30, 2009. 

Allocation by Investment Style as of June 30, 2009 

19% 

Beta 

Projected Investments by Channel 

Staff believes that both top-down portfolio construction and a bottom-up asset review is necessary for 

successful portfolio construction. In 2010, Staff currently plans to allocate additional capital to private 

market real estate through all three investment channels: separate accounts, open-end commingled funds 

(OECFs) and closed-end funds. The 2010 investment emphasis will be on stable assets and motivated 

sellers. 

Separate Accounts 

Staff is allocating an estimated $683 million to separate account managers in 2010, consisting of an 

estimated $189 million to complete the repositioning/redevelopment of existing assets plus an anticipated 

$494 million for new acquisitions. Staff has also approved up to $124 million of property sales, to allow 

managers to cull the portfolio and make opportunistic sales. By year-end 2010, Staff anticipates the value 

of the separate account portfolio will be $2.93 billion. 

Open-End Commingled Funds 

The managers of the OECFs aggressively wrote down the values of their portfolios in 2009. Staff believes 

that these open-end funds will present OPERS with an opportunity to access portfolios of stabilized 

properties at attractive pricing at some time in the future. Staff may invest up to $600 million in OECFs in 

2010 depending on market fundamentals and portfolio valuations. 

76 

Alpha 

81%



Closed-End Funds 

Staff anticipates that the general partners will call the remaining $428 million of OPERS’ commitments over 

the next three years. Staff intends to make renewed commitments to select general partners and to new 

ones. Staff also intends to continue to invest in Non-U.S. Real Estate through the closed-end fund channel. 

Staff anticipates committing $225 million to $275 million in three to five partnerships during 2010. 

Projected Portfolio Composition 

Assuming all discussed investments were made, the following table and graphs show the anticipated 

composition of the private market real estate portfolio by property type, investment channel and investment 

style by year-end 2010. 

Property Type 

Percentage 

50% 

40% 

30% 

20% 

10% 

0% 

Anticipated Total Private Market Real Estate Investment Activity for 2010 ($ millions) 

Market Value 

June 30, 2009 

2010 

Dispositions 

Projected 2010 Property Type Exposure and Policy Ranges 

Apartment Industrial Office Retail Other 

77 

2010 

Income 

2010 

Acquisitions 

Projected 

Market Value* 

December 30, 2010 

Apartment $738 $50 $29 $335 $994 

Industrial 457 39 20 247 643 

Office 1,453 38 58 460 1,954 

Retail 583 6 23 393 1,009 

Other 910 3 6 118 1.026 

Total $4,141 $137 $135 $1,553 $5,626 

*Includes 2nd half 2009 acquisitions, dispositions and cumulative appreciation/(depreciation) as of 12/31/2010. 

(subject to change) 

50% 

40% 

30% 

20% 

10% 

0%



Projected 2010 Allocation by Channel 

23% 

Separate 

Accounts 

Projected 2010 Allocation by Investment Style 

25% 

25% 

Beta 

Performance and Risk Control Parameters 

The Private Market Real Estate portfolio performance is expected to meet or exceed the National Property 

Index (NPI) over rolling five-year periods. The portfolio is measured net of all fees, (which average 100 

basis points annually). NPI is not adjusted for fees. 

78 

OECFs Closed End Funds 

Alpha 

75% 

52%



The tables below show the anticipated year-end 2010 portfolio construction by the following risk control 

parameters: life cycle; geography; and leverage. 

Life Cycle Exposure 

Type Policy Limit Projected 

Core >65% 82% 

Non-Core 75% 92% 

International



Real Estate 

Public Markets 


OPERS no longer has a strategic allocation to real estate investment trusts (REITs) in the Defined Benefit 

Fund. Staff intends to use REITs as tactical investments to augment the private market portfolio. 

Advantages to adding REITs to the real estate portfolio include: 

Diversification – REIT price movements to not coincide with the movement of the NPI, therefore REITs 

have historically provided some diversification benefits to a private market real estate portfolio 

Property Type Access – Staff may invest in REITs to gain access to property specific portfolios that 

would be difficult to acquire on a direct basis, such as a portfolio of super-regional malls 

Pricing Anomalies – Staff also envisions an investment in REITs when public market real estate 

securities trade at discounts to private market real estate prices. 

REIT investments in the Defined Benefit Fund will no longer have a separate benchmark. OPERS will 

invest in REITs if Staff believes that adding public real estate securities to the real estate portfolio will 

increase the probability that the OPERS Real Estate portfolio will outperform the NPI. Staff may use the 

internal active portfolio, a passive portfolio, derivatives or private placements to invest in pubic real estate 

securities. 


Strategy 

OPERS has retained an allocation to publically traded real estate securities in the Health Care Fund. The 

public market real estate allocation serves as the only real estate exposure in the Health Care Fund. The 

public real estate securities portfolio (the REIT portfolio) will be invested in an internal, actively managed 

domestic portfolio. The real estate securities portfolio is managed using a blend of quantitative and 

qualitative analysis to identify companies that are trading significantly below their intrinsic value or are 

priced inefficiently relative to their peer set. The strategy results in a diversified portfolio that is able to 

produce consistent risk-adjusted returns. 

Performance Objectives & Risk Control 

The Internal Active Real Estate Securities performance is benchmarked against the Wilshire Real Estate 

Securities Index (WRESI). The Internal Active Real Estate securities portfolio is measured net of fees (not 

including overhead expenses). WRESI is not adjusted for fees. The Internal Active Real Estate Securities 

portfolio is expected to exceed the benchmark returns by 50 basis points annually. The Real Estate policy 

establishes the program risk controls (liquidity and diversification) and investable instruments. 

80



Opportunistic/Hedge Funds 

Strategy 

Opportunistic investing allows OPERS to access investment strategies and new instruments that do not fit 

within one of the traditional asset class categories. There is no overall strategy for the asset class. Each 

potential strategy, such as those described below, will be evaluated on its own merit and whether the 

strategy is feasible and scalable. 

Hedge Funds 

This strategy is presently accessed through fund-of-funds and is 100% externally managed by Crestline 

Investors, Inc. and Pacific Alternative Asset Management Company. Each was initially funded with $25 

million in early 2006. In May 2007, the Board approved, and Staff completed, an additional funding of $25 

million for each manager. The Board has increased its allocation to hedge funds/opportunistic beginning in 

2010. Staff will be evaluating its approach to the asset type and making further recommendations on 

implementation to the Board. 

Active Currency 

The hiring of external managers to manage active currency mandates was approved by the Board in August 

2006. Several managers in the Non-U.S. Equity asset class manage currencies actively. However, no 

dedicated currency managers have been hired. 

Opportunistic Portfolio 

Staff currently manages “distressed debt-like” funds within the hedge funds/opportunistic allocation because 

this is not presently recognized as a long-term strategic objective. This use of a portion of the opportunistic 

allocation will continue to be evaluated. 

The limited size of the Opportunistic program is the primary risk-control mechanism. It is envisioned that 

eventually no single program or strategy will account for more than 35% of the total market value of the 

Opportunistic asset class. Risk-adjusted performance of the Opportunistic program is expected to be 

competitive with OPERS’ total fund return benchmark. 

Commodities 

Staff successfully invested over $50 million in commodity futures in 2008 and continued to study the asset 

class in 2009. 


The Board approved a 2% allocation to infrastructure investing beginning in 2010. Staff is evaluating 

accessing the asset class through both public and private investments, as well as other relevant aspects of 

the proposed asset class policy. The allocation seeks to participate in the favorable risk/reward 

characteristics of investments in real assets with stable cash flows, as well as the long-term nature of 

investments and their tendency to produce returns which keep pace with inflation. Infrastructure 

investments may also be an ideal way to gain exposure to developing economies. OPERS exists to serve 

public employees, so there is no desire to invest in, or encourage others to invest in, assets where the 

welfare of public employees would be diminished. 

81


Appendix


APPENDIX A 

Advisors’ Reviews 

Date: November 25, 2009 

Subject: The Annual Plan 

To: OPERS Board 

Cc: OPERS Staff 

From: Steve Burns 

The Townsend Group 

The Real Estate Consultant (“Townsend” or “Consultant”) to the Ohio Public Employees 

Retirement System ("OPERS") has reviewed the 2010 Real Estate Department Annual Plan 

("Annual Plan"). The Annual Plan is consistent with accomplishing the goals and objectives set 

forth in the OPERS Real Estate Policy ("Policy") which was revised and approved in 2007. We 

recommend that the board approve the Annual Plan, and we offer the following comments. 

The 2010 Annual Plan recommends placing additional capital in each of the three investment 

channels (separate accounts, open-end funds and closed-end funds) in the real estate portfolio. 

The focus will be on purchasing stable, income producing property opportunistically from 

motivated sellers. Current capital projections will target $1.3 billion to new investments and 

$189 million for current investments resulting in total capital commitment activity of $1.5 

billion. In addition, $428 million in unfunded commitments remain outstanding from past 

investment commitments and are expected to be drawn over the next several years. Given the 

recent re-pricing of the real estate asset class, and consensus view that the market is reaching a 

bottom, capital deployed throughout 2010 is expected to yield attractive returns. 

The market value of the private real estate program (“Program”) was approximately $4.2 billion 

as of June 30, 2009. Following projected acquisitions of $1.5 billion and $137 million of 

strategic dispositions in 2010, the projected year-end market value is approximately $5.6 billion. 

These figures are dependent upon the resumption of a normal transaction environment in the 

real estate markets, which has been minimal through 2009. 

With a focus on stable, income producing properties during 2010, an increase in allocation to the 

separate accounts and open-end funds is an effective and efficient manner in which to execute 

the plan. Separate accounts will be allocated $683 million ($189 for current projects) which is 

expected to increase the market value of this channel to $2.9 billion at year end (assuming $124 

million in planned strategic disposition activity) or 52% of the real estate portfolio. Open-end 

funds are being allocated $600 million, which would bring the year-end 2010 projected market 

value to $1.28 billion or 23% of the portfolio. Both of these allocations are intended to provide 

the Program access to stable, income producing properties at attractive pricing while providing 

diversification. The open-end funds may be delayed in drawing capital as both deposit and 

redemption queues have formed over the past year. 

82


APPENDIX A 

This situation occurs when fund management becomes uncomfortable with current pricing and 

will clear when the valuation activity settles, which is expected in the near future. Maintaining a 

conservative focus in the separate accounts and open-end funds is a prudent course of action. 

Closed-end fund vehicles have outstanding unfunded commitments of $428 million that will be 

called over the next several years. An additional $225-275 million will be allocated to this 

channel during 2010 bringing their allocation to 25% of the portfolio. Given the recent real 

estate market events, the most common investment theme observed has been distress. Distress 

can be observed in many ways including a need for rescue capital or a seller disposing of assets 

at a discount when motivated by the need for liquidity. The allocation to the closed-end funds 

will be used to take advantage of this distress and yield attractive opportunities for the program. 

In addition, the capital will be used to expand the global nature of the real estate portfolio, which 

is currently at the lower end (less than 5%) of the allowable range (up to 25%) of investments 

outside the US. 

The Annual Plan projects the amount of capital that will be invested by property type for each 

investment channel (separate accounts, open-end funds and closed-end commingled funds). 

Following the current allocations, the portfolio is expected to be comprised of 52% separate 

accounts, 23% open-end funds and 25% closed-end commingled funds. Additionally, the 

portfolio projects to be in compliance with diversification guidelines set forth in the Policy. We 

believe that it is important to ensure that the total Program is developed in a manner consistent 

with the Policy including diversification by property type. We also believe that it is important to 

have flexibility by investment channel. Maintaining flexibility in this environment is more 

important than ever before and will provide the ability to take advantage of opportunities as they 

arise. 

Given the challenging economic environment, it is our opinion that the Annual Plan applies a 

disciplined and pragmatic approach, which is consistent with the Policy. Current capital market 

conditions will continue to require diligent oversight and judgment on the part of Staff and 

Townsend. 

Please do not hesitate to contact me if there are any questions. 

Regards, 

Steve Burns 

Principal 

83


APPENDIX A 

MEMORANDUM 

To: Ohio Public Employees Retirement System (“OPERS”) 

From: Hamilton Lane 

Date: November 23, 2009 

Re: 2010 Annual Investment Plan 

Hamilton Lane has worked in conjunction with OPERS Staff in developing the 2010 Annual Investment Plan 

(the “Plan”) with respect to the private equity program of the Defined Benefit Fund (the “DB Fund”). 

Recognizing the planned elimination of a private equity allocation within the Healthcare Fund, our collective 

work for the 2010 plan centered on the DB Fund. As part of our strategic planning process, we have 

employed our Horizon Model, a proprietary, multi-state/multi-period investment pacing model. Particular 

focus was given to the increase of the targeted private equity allocation to 10% for the DB Fund, and the 

steps necessary to move the fund’s actual exposure towards that target over the course of the following five 

or more years. The inputs for this analysis, which employs multi-variable modeling, combines over 20 

years of historical data in our investment database, Hamilton Lane’s and OPERS’ Staff’s views of the 

private equity market risk and returns, commitment size, total number of relationships and asset sub-class 

diversification among other factors. 

Hamilton Lane believes that the Plan is tailored to meet OPERS’ long- and short-term objectives relative to 

the private equity asset class and is in conformance with Policy restrictions and guidelines. 

84


APPENDIX B 

85


APPENDIX B 

86


APPENDIX B 

87


APPENDIX B 

88


APPENDIX B 

89


APPENDIX B 

90


APPENDIX B 

91


APPENDIX C 

Name 

Steven F. Barker 

Joshua 

Biddinger 

Teresa Black 

John C. Blue 

Joseph D. 

Boushelle 

David 

Buchholz 

Department/Title Hire Date Experience Education Designations 

U.S. Equity 

Internal 

Management – 


Analyst 

Fund 


Portfolio 

Assistant 

Global Bonds 

Internal 



Lending Analyst 


Markets – 


Analyst 

U.S. Equity 

Internal 



Analyst 

Fund 


Portfolio 

Assistant 

June 1999 10 years 

April 2009 5 years 

November 

2000 

October 

1993 

September 

2008 

January 

2009 

92 

14 years 

18 years 

7 years 

3 years 

1993: B.S. Business Administration, 

The Ohio State University 

1999: M.B.A., The Ohio State 

University 

2002: A.A.B., North Central State 

College 

2004: B.S. Business 

Administration, Ashland University 

2008: M.B.A., Ashland University 

1995: B.S. Finance, 

The Ohio State University 


Administration, The Ohio State 

University 

1993: M.B.A. The Ohio State 

University 

1996: B.A. Economics, University 

of Chicago 

2006: M.B.A., Cornell University 

2005: B.S. Finance, Wright State 

University 

Level I Candidate in 

CFA Program 

1997: CFA 

Charterholder 

2009: Chartered 

Alternative 


2006: CFA 

Charterholder 

Level III Candidate 

in CFA Program


APPENDIX C 

Name 

Erik Cagnina 

Louis Darmstadter 

Alan J. Davidson 

Pat Edgington 

Mark Ehresman 

Tony Enderle 


Global Bonds 

Internal 



Private Equity – 

Portfolio 

Manager 

Office of the 

CEO – 


Compliance 

Officer 

Office of the 

CEO – 


Reporting 

Manager 

Global Bonds 

Internal 



Analyst 

Global Bonds 

Internal 



Analyst 

March 2006 15 years 


September 

2006 

46 years 

July 2000 31 years 


January 

2002 

8 years 

93 

1992: B.S. Finance, Miami 

University 

1998: M.B.A. Case Western 

Reserve 

1985: B.A. History, Tulane 

University 

1992: M.B.A. University of Chicago 

1992: M.A. Middle Eastern Studies, 

University of Chicago 

1960: B.A. Political Science, 

Pennsylvania State University 

1963: J.D. Harvard Law School 


University 


University 

2002: M.B.A. Case Western 

Reserve 


Administration, Bowling Green 

University 

2008: CFA 

Charterholder 

2002: CFA 

Charterholder 

Attorney 

2005: CFA 

Charterholder 

2002: CFA 

Charterholder


APPENDIX C 

Name 

Roger Fox 

Eric France 

Dan German 

Paul Greff 

Christopher 

Gregson 

Xinyang Gu 


Fund 



Adviser 

Global Bonds 

Internal 




– Risk Manager 

Global Bonds 

Internal 


Senior Portfolio 

Manager 

U.S. Equity 

Internal 



Analyst 

Fund 


Quantitative 

Analyst 


January 

2004 

94 

24 years 




October 

2000 

9 years 

1989: B.S. Mathematics, Purdue 

University 

2005: M.B.A. Franklin University 

1968: B.A. European History, Yale 

University 

1977: M.A. History, Ohio University 

1985: M.A. Finance, The Ohio 

State University 

1989: B.S. Economics, 

Allegheny College 

1990: M.B.A., University of 

Pittsburgh 

1983: B.A. Political Science, 

Kalamazoo College 

1990: M.B.A. Economics, 

University of Detroit 

1992: B.A. Psychology, 

Indiana University 

1993: B.S. Business Finance, 

Indiana University 

1982: B.S. Physics, Nanjing 

Institute of Technology China 

1989: M.S. Physics, The Ohio 


2001: CFA 

Charterholder 

1989: CFA 

Charterholder 

2006: CFA 

Charterholder 

1993: CFA 

Charterholder 

2001: CFA 

Charterholder


APPENDIX C 

Name 

Mary Ann Kabbaz 

Nick Kotsonis 

Jack Lake 

Deryck Lampe 

Brian Langenberg 

J.G. Lee 



– Executive 

Assistant 

Global Bonds 

Internal 



Analyst 

U.S. Equity 

Internal 



Analyst 

U.S. Equity 

Internal 


Senior Portfolio 

Manager 

U.S. Equity 

Internal 



Analyst 

Fund 


Fund Manager 

January 

2000 

95 

10 years 




January 

2009 

January 

2002 

21 years 

13 years 

2004: A.S. Business, 

Ohio Dominican University 

2003: B.S. Finance, Miami (OH) 

University 

1989: B.S. Business, Marist College 

1999: M.B.A. Finance, Case 

Western Reserve University 

1989: B.S. Mathematics, Purdue 

University 

1991: M.S. Statistics, University of 

Cincinnati 

1992: M.B.A. University of Cincinnati 

1988: B.A. Economics, St. Norbert 

College 

1995: M.B.A. Finance and 

Transportation, Kellogg Graduate 

School 

1996: PhD. Economics, The Ohio 


2007: CFA 

Charterholder 

1999: CFA 

Charterholder 

1997: CFA 

Charterholder 

1992: CFA 

Charterholder 

2001: CFA 

Charterholder 

2004: Financial 

Risk Manager 

2004: Professional 

Risk Manager


APPENDIX C 

Name 

Kevin Martin 

Jerry May 

William Miller 

Scott Murray 

Michael J. Parker 

DeAnne B. Rau 


U.S. Equity 

Internal 



Analyst 

Global Bonds 

Internal 



Lending Manager 

Fund 


Deputy Chief 

Investment Officer 

U.S. Equity 

Internal 



U.S. Equity 

Internal 



Analyst 


Markets – 



February 

2004 

96 

18 years 



October 

2008 

7 years 


1994: B.A. Accounting, Thomas 

More College 

1998: M.B.A. University of 

Cincinnati 

1991: B. Business Administration, 

Abilene Christian University 

2002: M.B.A. Ashland University 

1979: B.S. Mechanical 

Engineering, Kettering University 

1981: M.B.A. University of 

Pennsylvania 

1985: B.S. Political Science, 

University of Connecticut 

1991: M.B.A. Washington 

University 

2002: B.S. Economics, Wharton 

School, University of Pennsylvania 

1993: B.A. History, Mt. Holyoke 

College 

1994: B.A. Economics, The Ohio 



University 

1999: CPA 

2009: CTP – 

Certified Treasury 

Professional 

1985: CFA 

Charterholder 

2000: CFA 

Charterholder 

Level III candidate 

in the CFA program 

Level II candidate 

in the CFA program


APPENDIX C 

Name 

Chris Rieddle 

Christy Ruoff 

Daniel J. Sarver 

Richard Shafer 

Matthew Sherman 

Samir Sidani 


Global Bonds 

Internal 



Fund 


Equity Trader 


Markets – 



Markets – Deputy 

Chief Investment 

Officer 

Fund 


Senior Equity 

Trader 

Private Equity – 


Analyst 

October 

2007 

97 

20 years 



1979: B.S. Finance, Indiana 

University 

1982: M.B.A. Indiana University 

1982: B.S. Business Administration 

and Mathematics, Marietta College 


University 

May 2009 36 years 1973: B.A. Dartmouth College 

May 2006 15 years 


1994: B.A. Economics, The Ohio 


2000: M.B.A. Otterbein College 


of Rochester 

1993: CFA 

Charterholder 

1988: CFA 

Charterholder 

1980: CFA 

Charterholder 

2005: CFA 

Charterholder 


Alternative 

Investment Analyst


APPENDIX C 

Name 

Todd Soots 

Joan Stack 

Stephen 

Stuckwisch 

Bradley E. Sturm 

Timothy J. Swingle 

Roger Tong 


Global Bonds 

Internal 



Analyst 

Fund 


Trading Manager 

Real Estate – 




U.S. Equity 

Internal 



Analyst 

Fund 


Quantitative 

Analyst 

May 2002 11 years 

October 

2003 

October 

1995 

February 

1988 

August 

1998 

98 

34 years 

14 years 

16 years 

11 years 


1995: B.S. Finance, The Ohio State 

University 


University 

1974: B.A. Economics, Mount 

Holyoke College 

1977: M.B.A. Fordham University 

1986: B.A. Economics, Hanover 

College 


University 


of Cincinnati 

1982: M.A. Economics, University 

of Cincinnati 

1982: M.A. Industrial Relations, 

University of Cincinnati 


University 


Administration, The Ohio State 

University 

1991: M.S. Mathematics, New 

Jersey Institute of Technology 

1994: M.B.A. The college of 

Insurance 

2005: CFA 

Charterholder 

2000: CFA 

Charterholder 

1983: CPA (inactive) 

1988: CMA 

1995: CFA 

Charterholder 

2007: CMT


APPENDIX C 

Name 

Lewis Tracy 

Kimberly 

Van Gundy 

Erick D. Weis 

JoAnn Yocum 




Analyst 


Markets – 


Administration 

Analyst 

Fund 


Fund Manager 

Fund 



Assistant 

August 

2000 

99 

9 years 



December 

2000 

24 years 

1980: B.A. Economics, U.C. 

Berkeley 

1994: PhD. Russian Literature, The 

Ohio State University 


University 

1993: B.S. Accounting, University 

of Dayton 

2001: M.B.A. Franklin University 


Administration, University of Toledo 


University 

1987: A.S. Business, Bliss 

Business College 


Alternative 


2001: CFA 

Charterholder

Investment Plan - OPERS

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