INDIANAPOLIS — Indiana pension funds are feeling the pinch of falling oil prices because of the state’s investment in commodities.
The Indiana Public Retirement System has nearly 7 percent of its $24 billion defined-benefit portfolio invested in commodities, the Indianapolis Business Journal reported (http://bit.ly/1wQRgjk ). That stake helped drag the entire fund into negative territory, dropping 1.22 percent between July 1 and Jan. 31.
The drop illustrates the challenges investors have faced as they’ve sought alternatives to stocks since the Wall Street crash of 2008.
Indiana’s pension system, which oversees multiple public-employee and teachers’ funds, changed its investing strategy in 2012 and began allocating money to various asset classes that are supposed to do well under different economic scenarios.
The goal of the approach, called “risk parity,” is to eliminate wide swings in performance, even if it means forgoing the benefits of a bull market.
The state system has 22 percent of its portfolio in stocks, compared with an average of 51 percent among public funds, according to a survey by the National Association of State Retirement Administrators. Bonds make up about 32 percent of Indiana’s portfolio.
Commodities are one of the pension system’s smallest asset classes, but the allocation is heavier than in most pension funds.
“Not that many public pension funds have a material amount of assets committed to commodities,” said Keith Brainard, NASRA’s research director.
Lynn Turner, a former chief accountant at the Securities and Exchange Commission who follows pension performance, said he can see why a fund would have allocated some of its portfolio to commodities after the Great Recession.
“All of this is really a situation none of us have seen in our lifetime,” Turner said.
David Cooper, chief investment officer for Seattle-based Wurts & Associates, the Indiana system’s outside investment adviser, said Indiana’s commodities portfolio is a “reasonable” amount and won’t have a big impact on the total fund. He expects it to do well as the economy grows or if inflation rises.
But one critic says pensions should look for low-cost, highly liquid investments that come with high transparency.
“If there’s a global war, the price of oil will go up, I promise you — so what?” said Ted Siedle, a forensic analyst.
Overall, the Indiana pension fund was up 13.7 percent for the fiscal year that ended June 30. The average public fund returned 16.1 percent over the same time period, according to NASRA.
Information from: Indianapolis Business Journal, http://www.ibj.com
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