Oregon finds ‘no shortage of deal flow’ in alternatives

The Oregon Public Employees Retirement Fund (OPERF) will commit between $1.5 billion and $2 billion to alternatives in 2015 bringing its total commitments to the asset class to between $4.6 billion and $5.2 billion, OPERF’s alternatives investment officer Ben Mahon wrote in materials prepared for the Oregon Investment Council, which manages the fund and is scheduled to convene on Wednesday.

In 2014, OPERF approved $1.4 billion in commitments across 10 funds for its alternatives programme, which now accounts for 1.9 percent of the fund’s $69.2 billion portfolio, and has achieved a return of 6.36 percent year-to-date.

Of the 10 funds, four were specific to infrastructure. OPERF committed $50 million to the Mariner International Infrastructure Finance Company Fund; $100 million to Alterna Core Capital Assets Fund II; $50 million to EnCap Flatrock Midstream Fund III; and $200 million to GIP Capital Solutions.

There has been “no shortage of deal flow,” OPERF’s alternatives investment officer Ben Mahon, wrote in materials that he will present at today’s meeting, providing an overview of the alternatives portfolio. The “issue has been discriminating among opportunities,” he notes.

OPERF has a target allocation of 10 percent or a net asset value of approximately $7 billion for alternatives, which includes infrastructure, energy, mining and timber. Within the portfolio, OPERF has set a target of 30 percent or approximately $2 billion for infrastructure.

According to Mahon, “at [the] current pace, [we] will not reach target allocations for several years.” In terms of infrastructure, OPERF will seek opportunities in core and value-add infrastructure as well as infrastructure debt.

The fund will also be exploring co-investment opportunities. Its staff and pension consultant TorreyCove Capital Partners are creating a shortlist of potential co-investment partners and developing a framework for implementation. They are also assessing additional resource requirements, according to Mahon, who also notes that a shortage of experienced managers gives fee leverage to established general partners. Co-investing may be the most cost-effective way to reduce those fees, he states.

OPERF is part of the Oregon Public Employees Retirement System (OPERS), the vehicle through which public employers provide retirement benefits to Oregon's public employees. With 800 public employers participating, OPERS covers 95 percent of all state and local government employees in the state.

OPERS is directed by its own independent board and administered by its own agency based in Tigard, Oregon. Its contributions go into the Oregon Public Employees Retirement Fund, which pays OPERS members their benefits.

OPERF in turn is managed by the Oregon State Treasury under the direction of the Oregon Investment Council, which invests all State of Oregon funds, including OPERF and the State Accident Insurance Fund.