Covid-induced market volatility slashes Oregon’s Q1 performance

The $76.4 billion Oregon Public Employees’ Retirement Fund is expecting its first-quarter investment performance for the current calendar year to be down -7.8 percent amid a period of historic market volatility sparked by the coronavirus outbreak. The drastic drop in performance comes after OPERF earned 4.58 percent returns in Q1 2019.

Sharing the performance data in a board meeting held this week, departing CIO John Skjervem added a caveat that this was only a preliminary estimate and that the audited numbers would be available by mid-April. He explained how this estimate did not include the most up-to-date appraisal of OPERF’s private assets portfolio, including real estate, since these asset classes are only appraised on a quarterly basis.

As of end of February 2020 – the most updated asset class-specific data available, which does not factor in the covid-19 market disruption that occurred in March – OPERF had an 11.5 percent allocation to real estate. The asset class generated 1.59 percent returns in February 2020, compared with -2.45 percent for the overall portfolio.

Among OPERF’s most recent real estate commitments included a $250 million investment to the Walton Street Core-Plus Fund, according to PERE data.

The forecasted drop in overall portfolio performance in the full first quarter follows a historic period of volatility for stock markets. For the Dow and S&P 500 indexes, the first three months of 2020 represented their worst-performing first quarters in decades, with losses of 23.2 percent and 20 percent, respectively.

OPERF is one of the first major US public pensions to have publicly released an early estimate of how the ongoing market disruption is impacting institutional investors’ portfolios. Skjervem, however, said he believed OPERF would still end up outperforming many of its public pension counterparts.

“It is purely speculation because we will not see the peer group results until May. But [we] will be in the top quartile relative to our peer group and I would not be surprised if [we are] in the top decile,” he told board.

Skjervem compared the fund’s projected first-quarter performance with that of the first quarter of 2018, which also saw an unprecedented bout of volatility in the stock markets. For the period ending March 31, 2018, OPERF’s total portfolio had earned a 0.52 percent return.

“The first calendar quarter of 2020 is a more severe version of 2018, where the resilience we have built into the portfolio has not inoculated OPERS from losing money,” he said during the call. “That is impossible. I can’t earn a positive long-term return and inoculate the portfolio from losses. Those are mutually exclusive outcomes.”

He went on to add: “We can’t inoculate OPERF from losing money, but as I suggested, we are losing a lot less money than our peer group because we own a lot less stocks. We have a much more diversified portfolio.”

Last July, the public pension fund revised its asset allocation targets in a bid to reduce its public equity holdings from 35.5 percent to 32.5 percent. As of February 29, OPERF had 31.9 percent of its assets invested in public equities, within the policy range of 27.5-37.5 percent and below the 32.5 percent target.

OPERF’s future portfolio construction will be overseen by Rex Kim, following Skjervem’s resignation this week. Kim, who has a 25-year career in asset management and investment consulting, will lead the investment efforts of OPERF, as well as the Oregon Short Term Fund and the Common School Fund.