Ohio Health Care Fund Targets 5% For Private Equity

Sep 19 2007 | 8:16am ET

The $80 billion Ohio Public Employees Retirement System is revamping its $13 billion healthcare fund to include a 5% allocation to private equity.

During its July meeting, the system’s investment committee decided to shift its allocation to a 60% equity plus alternatives and 40% fixed income mix.

The new equity portfolio includes a 24.5% allocation each to domestic and international stocks, 6% to real estate investment trusts and 5% to private equity. The fixed-income portfolio has a 20% target for Treasury inflation-protected securities, 10% to global bonds and 10% to short-duration bonds.

The healthcare fund’s current allocation is 30% U.S. equity, 15% international equity, 15% global bonds, 5% REITs, 20% TIPS and 15% short-duration bonds, but no allocation to private equity. Trustees approved the changes, which were recommended by Mercer Investment Consultant, on Sept. 11. Mercer was selected as OPERS’ generalist consultant in May, replacing Ennis Knupp + Associates.

Mercer estimates that the new private equity allocation has an expected real compound return that is 0.5% per annum higher than for the current allocation “with only a slight increase in expected risk as measured by standard deviation of returns.” Mercer also projects that it will take roughly seven years to transition to the new p.e. allocation, assuming that the system implements the p.e. allocation in 2008. In the interim, while p.e. commitments are being funded, Mercer recommends system hold the remainder of the target allocation to p.e. be held in U.S. equity.

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