The Ohio Public Employees Retirement System is adjusting its long-term asset allocation for its defined benefit portfolio, citing elevated valuations across global markets and mounting structural concerns in private equity and real estate.
During its latest board meeting, the pension fund’s consultant Meketa recommended the reallocation, outlining pressures across private markets — including roughly a trillion dollars of dry powder, a prolonged slump in distributions, and a sharp slowdown in IPOs and mergers and acquisitions. The consultant noted the industry is working through multiple years of really high entry multiples, coupled with limited exits and a persistent backlog, conditions that make additional commitments less compelling in the near term.
Real estate faces similar headwinds. Meketa noted that the asset class “is still expensive,” with office values under continued strain and single-family housing “extremely costly.” Potential federal policy changes — including talk of dramatically extending mortgage terms — have added further uncertainty.
The proposed shift would reduce long-term targets for both private equity and private real estate by 1% each, reallocating those exposures to U.S. equities and international equities, at 1% each. Meketa stressed that the move applies only to the defined benefit pension fund only, not the healthcare plan. It also noted the shift would be straightforward to execute because the portfolios are already close to their proposed weights.
The consultant emphasized that the changes would not alter the fund’s overall balance between growth and diversification, noting the broad 79% growth/21% diversifying mix would remain intact. The impact on expected returns, according to Meketa, is “very, very tiny . . . a rounding error.” Risk metrics such as standard deviation and Sharpe ratio would stay largely unchanged.
Even so, some trustees questioned the timing, raising concerns about increasing U.S. equity exposure amid historically high valuations. Meketa countered that valuations abroad are not significantly cheaper, with equity markets globally reflecting a similar upward trend.
An experience study planned for later this year will prompt another review of the system’s long-term assumptions.
