Orange County Employees Retirement System (OCERS) Market Research Report

Background

The Orange County Employees Retirement System (OCERS) is a public pension fund established on January 1, 1945, following the approval of the County Employees Retirement Act of 1937 by Orange County voters. OCERS provides retirement, death, disability, and cost-of-living benefits to employees of Orange County and certain districts. As of December 2022, OCERS serves nearly 51,000 members, including active employees and retirees, and manages assets totaling approximately $20.6 billion.

Mission: To provide secure retirement and disability benefits with the highest standards of excellence.

Vision: To be a trusted partner offering premier pension administration, distinguished by consistent, quality member experiences and prudent financial stewardship.

Values:

Open and Transparent

Commitment to Superior Service

Engaged and Dedicated Workforce

Reliable and Accurate

Secure and Sustainable

Key Strategic Focus

OCERS focuses on delivering comprehensive retirement benefits to its members through prudent financial management and strategic investment practices. The organization emphasizes:

Diversified Investment Portfolio: OCERS maintains a diversified portfolio across various asset classes to optimize returns and manage risks effectively.

Financial Sustainability: Ensuring the long-term sustainability of the pension fund by adhering to sound actuarial practices and maintaining appropriate funding levels.

Member Services: Providing exceptional service to members, including retirement planning resources, educational programs, and responsive customer support.

Financials and Funding

As of December 31, 2024, OCERS reported total assets of $24.3 billion. The asset allocation was as follows:

Global Public Equity: $11.24 billion (46.3%)

Private Equity: $3.85 billion (15.8%)

Income Strategies: $3.71 billion (15.3%)

Real Assets: $3.04 billion (12.5%)

Risk Mitigation: $1.96 billion (8.1%)

Unique Strategy: $223.7 million (0.9%)

Cash & Cash Overlay: $278.2 million (1.2%)

The funding ratio, which measures the plan's assets relative to its liabilities, increased to 80.8% as of December 31, 2023, up from 77% the previous year. This improvement reflects OCERS' commitment to enhancing its financial health and ensuring the sustainability of member benefits.

Investment Performance

OCERS' investment performance as of December 31, 2024, is as follows:

3-Month Return: -0.8%

1-Year Return: 10.0%

3-Year Return: 4.1%

5-Year Return: 8.0%

10-Year Return: 7.4%

These returns are net of fees and are compared against the policy benchmark, which reported slightly lower returns across the same periods.

Leadership Team

Chief Executive Officer: Steve Delaney

Chief Investment Officer: Molly A. Murphy

Chair of the Board: Adele Lopez Tagaloa

These leaders bring extensive experience in public pension administration and investment management, guiding OCERS toward achieving its strategic objectives.

Competitor Profile

Market Insights and Dynamics

The public pension sector is characterized by the need for financial sustainability, effective risk management, and the ability to adapt to changing economic conditions. Key trends include:

Demographic Shifts: An aging workforce increases the demand for retirement benefits, necessitating robust funding strategies.

Investment Challenges: Market volatility and low-interest rates require pension funds to diversify portfolios and seek alternative investments.

Regulatory Changes: Evolving regulations impact pension fund operations, requiring adaptability and compliance.

Competitor Analysis

California Public Employees' Retirement System (CalPERS):

Assets Under Management: Approximately $500 billion.

Focus Areas: Provides retirement and health benefits to more than 1.9 million members.

Challenges: Faces significant unfunded liabilities, estimated at around $150 billion, impacting its long-term financial stability.

Texas County & District Retirement System (TCDRS):

Assets Under Management: $45 billion as of December 31, 2021.

Plan Structure: Each participating county and district maintains its own customized plan, offering flexibility and local control.

Funding Approach: Employers are required to pay 100% of their required contribution each year, ensuring necessary funds are saved and avoiding future financial strain.

Strategic Collaborations and Partnerships

OCERS collaborates with various investment managers to enhance its portfolio. Notably, in 2022, OCERS committed $125 million to Cortland Partners Growth and Income Fund and $50 million to EQT Exeter US Industrial Value-Add Fund VI. These investments aim to diversify the portfolio and capitalize on opportunities in the real estate sector.

Operational Insights

OCERS' strategic considerations include:

Diversification: Maintaining a balanced portfolio across asset classes to mitigate risks and enhance returns.

Risk Management: Implementing robust risk assessment frameworks to navigate market volatility.

Member Engagement: Enhancing member services through technology and personalized support to improve satisfaction and trust.

Strategic Opportunities and Future Directions

OCERS is focused on:

Infrastructure Development: Plans to build a new headquarters adjacent to its current building to accommodate an expanded staff and modernize facilities. Construction is estimated to take approximately 3.5 years, with a projected cost between $55 million and $70 million.

Technological Advancements: Leveraging technology and artificial intelligence to improve investment strategies and member services.

Sustainability Initiatives: Incorporating environmental, social, and governance (ESG) factors into investment decisions to promote long-term sustainability.