By Muskan Arora
Following the resignation of its senior leadership in September, the $97.3bn State Teachers' Retirement
System of Ohio continues to make changes. It recently trimmed Fuller & Thaler from its $107m active domestic microcap
equity portfolio in September.
CIO Matthew Worley, whose resignation will be effective in March, stated
the underperformance of the portfolio as one of the reasons.
Further, assets from the termination were
reallocated to liquidity reserves.
Ohio STRS allocates 26.1% to its domestic
equities sleeve against a target of 26%, as of June 30.
The board has further decided to reduce its
domestic and international equities exposure by $480m, despite domestic and
international equity’s return at 1.8% and 1.7% for September.
While equities go down, the system allocated additional $200m to its fixed income sleeve, as it provides “liquidity in risk-off markets to earn an additional return premium.”
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In September, the fixed income sleeve returned 1.3%.
“As economic uncertainty has increased,
investors have sought the perceived safety of mega-cap growth stocks. This has
resulted in wider valuation spreads and has led to narrow market breadth,”
stated the fund’s fiscal year 2024 plan.
“We are slightly overweight small cap due
to its cheaper valuations, but are defensively positioned within the space,”
added the plan.
Signaling a strategic and cautious shift
within the chemical industry, Fuller & Thaler recently reduced exposure to its
shares at Koppers Holdings Inc, which resulted in 0.14% impact on its portfolio.
Meanwhile, the controversy at the pension plan is possibly linked with both its CIO Matthew Worley and Lynn Hoover, acting executive
director and CFO announcing their retirement towards the end of September.
The reformer faction controls the board of STRS
and has been pushing to hike cost-of-living adjustments for retired Ohio
educators.
A hot topic among participants and board
members, COLA was suspended from 2017 to 2022 which led to a huge amount of
unfunded liabilities.
However, after COLA was reinstated, it lacked
pay back for years it was suspended.
Rudy Fichtenbaum, chair of the STRS board consistently
pitched an investment management firm called QED, despite the firm having no
experience or track record.
Allegedly, its owners had relations with
two board members.
Following the long controversy in the
board, in April consultant Aon stepped down.