Concerns Surrounding Oregon’s Private Equity Investments
Tobias, who has served as treasurer in Oregon for eight years, has consistently voiced no major concerns about the state’s investments. Notably, a significant portion of Oregon’s $100 billion civil servant retirement plan is tied to private equity investments.
Interestingly, the investment strategies in question aren’t publicly disclosed. Last summer, I mentioned to a key aide that there were worries regarding the risks of such costly investments. These investments are essential for about 415,000 Oregonians who rely on the public pension system for their retirement.
“We really need to discuss the associated risks more openly… and that includes a broader range of private equity,” I remarked, adding that this has been a recurring theme. My concern is mainly about the overall status of our private equity asset class.
Such worries are quite understandable. A recent survey indicated that Oregon’s pension fund has continued to pursue private equity investments over the last decade, often exceeding the targeted benchmark. The state Treasury’s personal investments have significantly surpassed the intended threshold of 20%.
Excessive focus on private equity has likely impacted overall returns of the pension fund, which also includes stocks, bonds, and real estate. Ironically, funds invested in public stocks, those which had risen last year, missed out on returns due to this approach.
Private investment firms like Apollo, Blackstone, and KKR thrive on generating profits from public pension funds and private entities, often without much transparency or regulatory oversight. They typically impose high fees—about 2% annually, plus 20% of profits.
In an email sent in August 2024, Tobias asked his staff member, Rex Kim, the Chief Investment Officer of the Treasury, to compile a report on investment risks by late October.
Surprisingly, he admitted, “I don’t completely grasp what’s happening with these investments right now, or where they’re leading.”
The request for the report has been made to the Ministry of Finance, but it’s not yet clear if Kim’s team has drafted it.
Upcoming discussions on PERS, private equity, and associated risks are scheduled for September 3rd. The Oregon Investment Council, responsible for overseeing PERS and other state investments, will hold in-person meetings at the Treasury’s office in Tigard, which will also be available online.
Before the meeting, a coalition including six Oregon legislators, the American Federation of Teachers, and various activists sent inquiries to Elizabeth Steiner, raising concerns over the pension fund’s private equity investments and their disappointing performance.
“These losses have increased the financial burden on public employers like schools. A decrease in returns forces public agencies to allocate more funds for employee retirement benefits,” they asserted.
Activists like Divest Oregon have also been vocal in upcoming public comment meetings.
“I’m worried we’re stuck with investments in private equity. Sure, it might have worked as a strategy decades ago, but it’s not yielding results anymore,” stated Sen. Karn Pham (D-Portland).
She, along with five other lawmakers, plans to delve into these issues further on September 4th.
In a recent discussion, Steiner mentioned that the Treasury will still invest in private equity for PERS, earmarking about $2 billion for 2025, but they have shifted to selling more than acquiring. Furthermore, she indicated that they aim to reduce their private equity portfolio significantly by the end of 2024, with plans to achieve a target of 20% by 2028.
“I believe they’re moving in the right direction,” she concluded.
Implications Ahead
The report by the Willamette Week suggests that legal changes may be on the horizon, compelling civic leaders to take action and potentially affect the careers of politicians involved.
