Investment Plan - OPERS

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2 0 1 0 I N V E S T M E N T P L A N INVESTMENT PROGRAM 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 2 0 1 0 I N V E S T M E N T P L A N INVESTMENT PROGRAM 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 Investment Compliance
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Investment Plan - OPERS

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