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Grant School District Superintendent Mark Witty Credit: Grant School District<\/p>\n\t\t\t\t\tQuickTake:<\/p>\n
The state officials that decide how to invest PERS assets disregarded advice from high-paid investment consultants for years and kept a higher-than-recommended percentage of the money in private-equity assets, as opposed to more traditional stocks, bonds and real estate. The returns have lagged, and the consequences are bringing economic pain to cities, school districts and other government bodies \u2014 not to mention some of the employees.<\/p>\n<\/p>\n
Earlier this year, Grant School District Superintendent Mark Witty faced a $900,000 hike in what his district needs to pay this coming year to the Oregon Public Employees Retirement Fund.<\/p>\n
It was a crippling announcement for his small eastern Oregon district, which serves 470 kids in and around John Day.<\/p>\n
The cause of the increase? Lousy investment returns by the state agency empowered to invest public employees\u2019 money. And when investment returns are poor, the state has to fund pension obligations by forcing local governments to make up the difference.<\/p>\n
Grant School District Superintendent Mark Witty Credit: Grant School District<\/p>\n
\u201cWe had to make significant cuts,\u201d Witty says. \u201cIt\u2019s been traumatic for people.\u201d<\/p>\n
He had to fire a secretary and an administrator. He couldn\u2019t replace three teachers who were leaving, including one in special ed, as well as two teacher\u2019s aides. He made cuts to high school vocational agriculture, sliced $20,000 from the athletics department, and cut the district\u2019s single art teacher to half-time.<\/p>\n
That art teacher, JJ Collier, has worked at Grant Union, the combined junior and senior high school in John Day, for 19 years. At 68, she still needed more full-time years of credit for retirement. \u201cIt\u2019s frustrating,\u201d she says. \u201cI was angry.\u201d<\/p>\n
Hard choices like those the Grant district had to make have played out across the state\u2019s 197 school districts as school boards and superintendents look for an estimated $670 million more over two years to pay for the increased pension fund assessments. Money that could pay for about 6,700 beginning teachers.<\/p>\n
The pain, of course, goes far beyond school districts. Every public employer from the state of Oregon down to the smallest special district \u2014 904 government employers in all \u2014 is in materially worse shape this year because of the pension fund\u2019s anemic investment returns.<\/p>\n
That means fewer teachers, firefighters, nurses and other vital employees.<\/p>\n
Private-equity investments fall short<\/p>\n
An Oregon Journalism Project investigation of the Oregon Investment Council shows that poor investment returns could have been averted if Oregon had simply followed the investment advice of outside experts, advice that the state pays handsomely for.<\/p>\n
The OJP investigation included interviews with people inside and outside of the Oregon State Treasury as well as an examination of thousands of pages of documents, meeting minutes and financial data.<\/p>\n
For years, the paid experts advised the state to put more money in the stock market and less in a form of investment called private equity\u2014a risky kind of financial engineering in which investment managers buy private companies and seek to resell them in seven to 10 years. And while some major state pension funds and university endowments have been reducing their private equity holdings, Oregon has stayed the course.\u00a0<\/p>\n
Results have been dismal.\u00a0<\/p>\n
For the past 10 years, Oregon\u2019s investments in private equity yielded returns below its yardstick \u2014 the Russell 3000 Index<\/a> plus 3%. Last year, Oregon\u2019s private equity portfolio yielded 4.1%, while the Russell 3000 benchmark yielded 38.4%.<\/p>\n Rex Kim, the treasury\u2019s chief investment officer since 2020, oversees the $100 billion in the pension fund and how it is invested. Kim\u2019s $810,030 salary makes him the highest-paid state employee.<\/p>\n He brushes off criticism of the state\u2019s private equity portfolio, saying it\u2019s myopic. \u201cI\u2019m not a big fan of taking single-period snapshots of performance.\u201d He says his team invests for the long term, over decades of market cycles that, he says, show private equity beating the stock market.<\/p>\n Rick Pope, a retired Portland lawyer who has spent years attending Oregon Investment Council meetings and publishing reports about the fund for Divest Oregon<\/a>, is blunt: \u201cThey have a car crash on their hands, which [his] staff continues to deny as a problem,\u201d Pope says.\u00a0<\/p>\n Treasury staffers, he adds, have \u201callocated way beyond their policy to private equity, which has damaged [Public Employee Retirement System] returns. They missed the big stock market uptick because the treasury had to sell stock market investments to fund benefits.\u201d\u00a0<\/p>\n Veteran reporter Ted Sickinger recently dug into these topics at The Oregonian.<\/p>\n Think of Oregon\u2019s pension fund as a savings account. And some 415,000 people rely on it for their PERS benefits. Though most Oregonians don\u2019t have a public pension, the success of the fund impacts their quality of life and their families\u2019 futures.<\/p>\n \u201cWe should all care about PERS because this system touches just about every public service in Oregon,\u201d says John Tapogna, senior adviser with ECOnorthwest.<\/p>\n Kim\u2019s not the only one responsible. The state treasurer, who is Kim\u2019s boss, and the other four voting members of the investment council \u2014 appointed by the governor for their investment expertise \u2014 have presided as Kim and his team have overinvested in private equity.<\/p>\n One of the nation\u2019s leading experts on pension fund investing, Richard Ennis, who reviewed Oregon\u2019s 10-year performance, recently gave Oregon Journalism Project a withering assessment.\u00a0<\/p>\n \u201cOregon has underperformed its private equity benchmark by a significant margin,\u201d says Ennis<\/a>, who helped create the field of institutional investment consulting. \u201cThey appear to be after the highest-returning asset without respect to risk-return considerations and without regard to their seeming lack of selection skill.\u201d<\/p>\n Gov. Tina Kotek and lawmakers have been debating for the past six months whether Oregon schools need more funding or greater accountability for the money they spend. OJP\u2019s reporting shows this would be far less of an issue if the state simply invested more wisely.<\/p>\n How PERS works<\/p>\n The Oregon Public Employees Retirement Fund is responsible for paying pensions to 166,000 retirees and 249,000 future retirees. To do that, PERS charges each city, county, school district and public employer 27 cents on top of every payroll dollar \u2014 the system\u2019s highest rate ever \u2014 and gives the money to OPERF to invest. The fund uses investment gains to pay pensioners.<\/p>\n Investment returns \u2014 profits on the investments managers make \u2014 fuel the system.<\/p>\n The investment decisions treasury investment staff makes, following Oregon Investment Council policy, are crucial. Sometimes stocks are better than bonds. In other years, real estate or private equity might outperform.<\/p>\n Drawing on the expertise of highly paid outside consultants and the council, Kim\u2019s team essentially creates a recipe for what percentage of the fund, called a target, to allocate to different asset classes: stocks, bonds, real estate and private equity, all with an eye for growth and stability that looks decades into the future.<\/p>\n But as any cook can tell you, too much of one ingredient and too little of another can ruin the dish.<\/p>\n How the fund got out of whack can be laid at the feet of the Oregon State Treasurer\u2019s Office, its chief investment officer, and the Oregon Investment Council, a board of directors<\/a>, if you will, that includes as voting members the state treasurer and four members who are appointed to the voluntary position by the governor. Understanding how these partners work together is key.<\/p>\n To guide its choices, treasury staff hires outside experts who tap mountains of research and the best investment analysts to formulate an investment strategy \u2014 i.e., how much of the portfolio to allocate to the various ingredients.<\/p>\n The state paid one of those consultants, Meketa Investment Group, $1 million in the past year for advice on the best mix.<\/p>\n \u201cAsset allocation is the most important decision the OIC makes,\u201d Meketa tells the council in its regular reports.<\/p>\n Records show the treasury has not followed that high-priced advice for years. For instance, Meketa\u2019s current target for stocks is 27.5%. But just 18% of Oregon\u2019s $100 billion pension fund is currently invested in stocks.<\/p>\n And the stock market has increased in value significantly more than private equity over the past few years.<\/p>\n In other words, OPERF has loaded up on losers and underinvested in winners. As for the private equity investments, they underperformed their benchmarks every year but one over the past decade.\u00a0<\/p>\n A number of leading pension funds have been moving away from private equity. Last year, the $202 billion Teachers Retirement System of Texas cut its private equity target to 12%, down from 14%. The $41 billion endowment at Yale University quietly decided in April to sell $6 billion in private equity because the funds weren\u2019t delivering the outsized returns that Yale had expected. The sale is particularly significant because Yale pioneered private equity investing among university endowments and many others followed its lead.\u00a0<\/p>\n If the PERS fund had roughly matched the targets that the consultants and investment council members had committed to, for stocks and private equity, the fund would have earned about $1.4 billion more in 2024.<\/p>\n School districts like Grant County\u2019s and cash-strapped cities such as Roseburg, Lakeview and Coos Bay would have millions of dollars more to spend on teachers, librarians, firefighters, street maintenance workers and other needed services.<\/p>\n Asked for his reaction to the OJP calculation about the $1.4 billion cost of being out of compliance with its 2024 targets, Tobias Read \u2014 who was Oregon state treasurer from 2017 to 2025 \u2014 replied:<\/p>\n \u201cWhat is my reaction to not having a crystal ball that tells you what exactly will happen in markets next year? Or 10 years? If we could buy one of those, I\u2019m sure we would have.\u201d<\/p>\n Even current State Treasurer Elizabeth Steiner says changing course is ill-advised.<\/p>\n \u201cAt Treasury, we invest the $101 billion in the PERS fund based on long-term goals and strategies,\u201d Steiner said. \u201cWe don\u2019t chase one-year market ups and downs.\u201d<\/p>\n In fact, Kim\u2019s team plans to add to its private equity holdings this year by buying about $2 billion more of the underperforming asset class.<\/p>\n Steiner supports that decision.<\/p>\n Sticking with the strategy<\/p>\n There are several possible reasons Steiner, Kim and others are sticking with Oregon\u2019s private equity strategy.<\/p>\n First, Oregon has a long history with private equity. In 1978, it became the first public pension fund to invest in the complicated asset, with $10 million in a fledgling firm called Kohlberg Kravis Roberts & Co., which went on to become a giant in the private equity field. Three years later, the Oregon pension fund made a colossal $178 million bet on a $420 million leveraged buyout of Portland\u2019s Fred Meyer grocery chain. The gamble paid returns up to a reported 400% years later.<\/p>\n \u201cWhen I was there, we were really proud of being pioneers in that realm,\u201d says Mark Gardiner, a Portland businessman who served on the Oregon Investment Council from 1999 to 2007.<\/p>\n Second, Oregon dug itself a big hole in the 1990s by promising generous benefits to public employees that it couldn\u2019t afford. By 2005, it had crawled out of that hole and the system was fully funded, meaning it had enough money in the fund to pay 100% of future liabilities.<\/p>\n But the Great Recession and the accompanying real estate and stock market crash dug a deep new hole. Today, the fund has a $24 billion unfunded liability. Put another way, it has only 77 cents for every dollar it owes to current and future pensioners.<\/p>\n![\"\"](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2025\/08\/rex-kim_oregon.gov_.png\")
Rex Kim, Oregon state treasury\u2019s chief investment officer Credit: Oregon.gov<\/p>\n![\"\"](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2025\/08\/pers_flipped@2x-100.jpg\")
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Former State Treasurer Tobias Read Credit: Brian Brose<\/p>\n![\"\"](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2025\/08\/Steiner-Elizabeth_election-portraits-4-61_Brian-Brose.jpg\")
Oregon State Treasurer Elizabeth Steiner Credit: Brian Brose<\/p>\n
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As chair of the Oregon Investment Council, Rukaiyah Adams warned of too much exposure to private equity. Credit: Sam Gehrke<\/p>\n![\"\"](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2025\/08\/nation_oregon@2x.jpeg\")
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