Investment Plan - OPERS Invest… · recession will necessarily be led by different forces than those which led the last cycle; housing and retail spending are still in recession-mode

U.S.

Equity

Non-U.S.

Equity

Global

Bonds

Private

Equity

Real

Estate

Opportunistic/

Hedge FundsInfrastructure

Defined

Benefit

Fund

Health

Care

Fund

Defined

Contribution

Fund

InvestmentPlan2010

Ohio Public Employees

Retirement System

277 East Town Street

Columbus, Ohio 43215

www.opers.org

800-222-7377

2 0 1 0 I N V E S T M E N T P L A N

TABLE OF CONTENTS

Investment Program

Report from the CIO 1

Organizational Structure 7

Office of the CIO 9

Fund Management 10

Global Bonds Internal Management 12

U.S. Equity Internal Management 14

External Management 15

Investment Governance 16

Resources 20

Fund Strategies

Defined Benefit Fund 26

Health Care Fund 35

Defined Contribution Fund 43

Asset Class Strategies

Tactical Outlook 51

Public Equity 55

Public Fixed Income 62

Private Equity 71

Real Estate 75

Opportunistic/Hedge Funds 81

Commodities 81

Infrastructure 81

Appendix A

Advisors’ Reviews 82

Appendix B

Economic Outlook 85

Appendix C

Investment Staff 92


Investment Program


INVESTMENT PROGRAM

1

Report from the CIO

Dear Members of the OPERS Board of Trustees:

Developing a plan instills a discipline to remain focused on the investment goals against which the

Division’s performance is benchmarked. It is an honor to present the 2010 Annual Investment Plan. This

plan is a collaborative effort of the OPERS Investment Division Staff and was discussed in detail with

OPERS Investment Advisors.

In our industry, value is created through tested tenets – by generating target returns for the total fund

through each asset class and portfolio and by maintaining a competitive cost structure relative to our asset

allocation. Performance will be driven by our insights and discipline and our ability to hire and retain key

investment professionals who share our, and OPERS’, commitment to excellence. Our efforts are aligned

not just with our investment goals but, more importantly, with the Investment Division’s core values and

OPERS’ strategic objectives.

Review of 2009 (through October 2009)¹

Although we tactically address the opportunities and challenges in the capital markets, we remain

disciplined institutional investors with a long-term strategic asset allocation designed to meet our plan

objectives. Our policies are not predicated on short-term economic cycles but rather on a long-term time

horizon appropriate to our pension liabilities and health care commitments.

The panic of 2008 has receded, particularly in the capital markets where it began. The economic

recession, caused by both the panic and economic excesses, has ended. The consensus believes that the

recovery will be an extended period of subdued growth based on a “debt hangover.” While that case makes

sense, consensus expectations should be adopted cautiously. The U.S. economy that emerges from this

recession will necessarily be led by different forces than those which led the last cycle; housing and retail

spending are still in recession-mode. The level of trade, the value of the dollar, the productivity of workers,

immigration policy, the wars abroad and many other factors will impact growth, regardless of debt levels at

a point in time.

The OPERS Board of Trustees (Board) and Staff’s efforts have been stress-tested by market events. While

found not to be perfect, it is important to recognize that we have all passed the test – by quite a margin, in

fact. Ours is a highly complex endeavor, on a scale that is breath taking. In order to fund and provide for

the benefits our members have earned, OPERS has had to become a huge financial enterprise. Our

capital is invested from Vietnam to outer space, but also down to simple products we all use every day and

in companies headquartered as close as downtown Columbus. The fruits of that capital are brought back to

our fund and made available for benefits.

¹ Detailed information of actual 2009 accomplishments will be reported in the 2009 OPERS Comprehensive

Annual Financial Report, published at a later date.


INVESTMENT PROGRAM

2

With the Board’s confidence in Staff, expressed most recently by its timely permission in early 2009 to

widen our asset allocation ranges to reflect market valuations born of panic rather than intrinsic value, we

capitalized on adversity. OPERS was able to maintain its market discipline and ultimately to be a holder

and a buyer at distressed prices rather than a seller. That’s investment discipline on top of good portfolio

structure. Discipline (a repeatable process that adds value when applied consistently) separates

professionals from amateurs in the field of investments.

Because of the scale of our endeavors, we owned some of virtually all of the “problem assets” that

bedeviled the markets: mortgages that were badly secured, short term securities that became long term,

real estate-backed securities that are priced below par to this day and, yes, our share of Lehman and AIG,

and other names that will eventually fade from people’s lexicons. But while we owned these things, they

were proportional within our disciplined program and we also owned treasury bonds and other assets which

rose to very high valuations, or maintained their value, during the panic.

Staff is also encouraged that many of the unsustainable excesses in the broader economy and in the

capital markets have been addressed, however abruptly and un-gently by the bear market and economic

recession. Both now have a more solid foundation to build on. Valuations are not stretched in most market

sectors and mortgage banking is no longer seen as entrepreneurial but once again as banking. Yet, the

complete consequences of the bubbles and their bursting have probably not been felt. One area of

unfinished business is the overhang of refinancing yet to take place in commercial real estate. While

concerning, it need not end in disaster.

In investing, adversity begets opportunity. The Board has capitalized on this first, by not slavishly forcing

itself to sell assets at the worst possible time and later, by its subsequent review and adjustment of asset

allocations across the Defined Benefit, Health Care and Defined Contribution Funds. In every case, we

have used market insights to improve the balance of return and risk. However, in no case have these

allocations withdrawn exposure to markets or the broad economy that are the very sources of both risk and

the opportunity for returns. Our capital must be employed if it is to provide benefits.

In reviewing information up through the third quarter, there were many accomplishments during the year, including:

Participation in the market recovery that has restored an important measure of the funding lost. When

peer performance data for comparably-sized plans is available for comparison, we believe it will show a

more complete measure of this achievement.

Proactive steps taken to reduce the impact of the severe financial crisis on the total fund. This included

tactical positioning of asset classes, active management of our financial sector exposure, vigilant

monitoring of portfolios and coordination with our investment partners.

Execution of the strategic asset allocation for the Health Care Fund. This transition resulted in a higher

allocation for equity-like assets relative to fixed income assets to generate a higher return while

maintaining a reasonable risk parameter.

Increased utilization of derivatives to gain and hedge exposure to asset classes in a cost effective and

efficient manner. The prudent use of derivatives has also allowed the fund to more efficiently manage

Board-approved ranges around our target allocation.


INVESTMENT PROGRAM

3

Our achievements likewise have supported OPERS strategic efforts to go from “Good 2 Great” through our

nine initiatives in the OPERS Strategic Plan. Below is a report on our progress (codes succeeding

initiatives reference the groupings within OPERS Strategic Plan):

Create a hedge fund strategy (FP4)

Following Staff presentations and recommendations in June and July 2009, the Board approved a 3%

allocation to Hedge Funds combined with its opportunistic allocation. Staff has invested several

hundred person-hours developing implementation plans for Board review and eventual request for

proposals for managers.

Increase Private Equity allocation within the Health Care Fund (FP5)

The unexpected reduction in the projected solvency period for the Health Care Fund led the Board to

elect to reverse its prior decision to add a Private Equity allocation to the Health Care Fund. However,

for unrelated reasons, the Board doubled its allocation to Private Equity within the Defined Benefit Fund,

which, when added to an already below-target weighting, provides OPERS with plenty of ongoing

investment opportunity in this asset class.

Enhance the OPERS Investment Options offered to Defined Contribution Fund (FP6)

Changes included adding 10 target date funds composed of varying allocations of our six existing core

funds. These replaced the pre-mixed portfolios previously offered. The Board later accepted the

addition of three asset classes (Inflation-indexed Bonds, High Yield Bonds and Long Duration Bonds) as

enhancements to the Target Date funds. Staff has begun implementation of those enhancements and

will also be hiring active managers for the U.S. equity options (large cap and small cap).

Going beyond this strategic initiative, Staff has revamped the risk/compliance framework and manager

selection processes for the Defined Contribution Fund to make them more consistent with those for the

Defined Benefit and Health Care Funds.

Develop and implement a plan to gain exposure to non-U.S. equity markets using derivatives and

internal management capabilities (FP7)

The importance of this initiative has increased along with the larger allocation to Non-U.S. Equity from

20% to 25% in the Defined Benefit Fund. Staff has been able to use over-the-counter swaps (following

appropriate implementation of operational processes and controls, legal documentation review and

adding a new counterparty), to first add and then reduce, exposure to the developed markets within

Non-U.S. Equity in 2009. Staff is preparing to extend this capability to the developing markets within

Non-U.S. Equity. Staff will also continue its evaluation of using listed futures and internal management

for Non-U.S. Equity exposure.


INVESTMENT PROGRAM

4

Private market database (IN F9)

Staff is preparing to “go live” with the eFront system, which holds all pertinent data relevant to OPERS

Private Real Estate and Private Equity holdings, no later than the first quarter of 2010 following a period

of parallel testing of results with existing methods (using September 30 and December 31 quarter-end

data). The private equity portion of the system was released for production tests on schedule on

July 1, 2009.

International Real Estate Securities manager selection (IN F10)

Staff is re-drafting the real estate policy to incorporate the REIT portion of the Defined Benefit Fund’s

Real Estate portfolio within the broader allocation to real estate. This would eliminate the strategic

distinction between public and private real estate within the Defined Benefit Fund, leaving Staff to

implement the real estate policy using the best-valued assets available at the time funds are deployed.

Therefore, the international real estate exposure will also be implemented using whatever vehicles are

most efficient when funds are deployed (e.g., international REITs, closed-end funds, open-end funds,

infrastructure funds or other means).

External Public Markets external manager cost and efficiency review (IN F11)

Staff has retroactively negotiated reductions more than $1 million of fee savings from external

managers and advisors. In addition, one of the very few fortunate results of the bear market was a

significant reduction in fees based on asset size.

In addition, Staff has developed and distributed a new streamlined Investment Manager Agreement

(IMA) to four select managers. Their feedback will be incorporated into the final product. The goal of

this IMA process is to generate a standardized legal agreement for external managers, which is

customized only for differences in asset type rather than negotiated on an ad hoc basis (currently). This

process will save time and legal fees.

Staff is also in the final selection process for a group of transition managers, following the completion of

an RFP process, which will lower costs and improve efficiency.

Defined Benefit Fund strategic asset allocation (IN F12)

The Board has approved changes in the asset allocation of the Defined Benefit Fund to better balance

return and risk. The Board also made modifications to the asset allocation of the Health Care Fund.

Staff is preparing a complete asset class policy review for the Board as well as studying the necessary

steps to implement the new allocation.

Front office system implementation (IN F13)

There was significant progress in the implementation of a multi-year technology plan to enhance our

portfolio management and trading capabilities. The Bloomberg order management system for fixed

income has been operational since October 29, 2008. The Charles River order management system for

equities was successfully implemented in January 2009, which in turn allowed the old Macgregor

system to be shut down. The Bloomberg cash management system was recently deployed in February

and is operational. The eFront system and Eagle data warehouse will, when complete, support better

planning and reporting across all asset classes and provide the foundation for better cataloguing of risk

across the all asset classes.


INVESTMENT PROGRAM

5

Overview of 2010 Annual Investment Plan

As always, the Investment Division’s goals reflect the Board’s ongoing mandate to earn expected returns,

while managing to an acceptable level of risk.

Several of the Investment Division initiatives are listed below:

Implement Board-approved asset allocation changes in the Defined Benefit, Health Care and Defined

Contribution Funds.

Update Board investment policies, educate Staff and the Board regarding market conditions and

investment opportunities, design implementation plans, prepare, issue and evaluate responses to RFPs

and take steps necessary to make progress on the implementation of the changes in these asset

allocations in a cost-effective and considered manner.

Add resources and fill Staff vacancies to accommodate investment in new asset classes.

Further expand risk management capabilities and compliance systems.

Add a higher proportion of active management to Public Equity.

Develop improved forecasting capabilities of employer/employee cash receipts and pension/healthcare

payments to better manage fund asset allocation.

Evaluate an implementation plan for expanding the internally managed securities lending program to

include lending U.S. treasuries and Treasury Inflation Protected Securities (TIPS).

Research and develop trading, information technology, reporting and back office infrastructure to

internally manage Non-U.S. Equities, additional U.S. Equity mandates and commodities exposure.

Expand capabilities for implementing asset class or portfolio hedging strategies.

Evaluate the Opportunistic Core and Opportunistic Short Duration portfolio strategies and implement

modifications, as appropriate.

Asset Management

As prudent stewards of a public fund with a long-term investment horizon, the Investment Division will

continue to monitor and measure three distinct sources of return and risk: strategic (policy allocation),

tactical (investment implementation level) and active (manager level). Each source of return and risk

contributes to achieving overall investment results. The Defined Benefit and Health Care Funds sections

presented later in this Annual Investment Plan provide details about how policy, tactical and active returns

will be generated within a framework of managed risks.

In summary, the 2010 goals established for each source of return and risk for the Defined Benefit and

Health Care Funds are as follows:

The total expected return of the OPERS’ Defined Benefit Fund in 2010 is 7.56% and is comprised of the

expected policy return of 7.23% and active management return of 0.33%. The total risk that will be

taken to achieve this return is 10.70%, which is derived from the combination of the policy risk of

10.50%, tactical risk of 0.30% and active risk of 0.80%. Long term expected returns remain above 8%.


INVESTMENT PROGRAM

6

The total expected return of the OPERS’ Health Care Fund in 2010 is 6.52% and is comprised of the

expected policy return of 6.12% and active management return of 0.39%. The total risk that will be

taken to achieve this return is approximately 8.70%, which is derived from the combination of the policy

risk of 8.50%, tactical risk of 0.30% and active risk of 0.45%.%. Long term expected returns remain

above 7%.

Resources

As stated previously, the Investment Division will thoughtfully align its resources against targeted priorities

to ensure the success of our stated goals by year-end 2010. The Investment Division currently has 59

authorized positions. The Investment Division submitted an estimated compensation and operating budget

of $17.9 million for 2010, a 4% increase over 2009. The budget includes an estimate of the 2010 incentive

compensation payout, which reflects 2009 investment performance. Consistent with the rest of OPERS,

the budget assumes no merit increases for Staff in 2010. It also reflects the Division’s effort to maintain

internal investment management where appropriate due to its very large cost savings and to manage

related administrative expenses.

It should be noted that the estimated total cost to manage the OPERS asset base in 2010 will be 31.2 basis

points (a basis point equals one hundredth of a percent). The total estimated cost of 31.2 basis points

translates to $217.25 million, 10% higher in dollars than the previous year. This cost reflects many factors,

including a shift in asset mix to more complex asset classes. The cost assumes a long-term growth trend in

the fund’s asset base; a continued bear market would reduce the cost. The breakdown of the budget is

discussed in greater detail throughout this plan.

Summary

The Investment Division remains focused on living up to OPERS’ mission “to provide secure retirement

benefits for our members.” This can only be accomplished by clearly establishing our goals and diligently

implementing and monitoring them in the face of both the daunting challenges and immense opportunities

within the capital markets.

Detailed information regarding how each of the initiatives will be achieved follows in this document, which is

organized into three sections: Initiatives and Resources, Fund Strategies and Asset Class Strategies.

Finally, I would like to sincerely thank the OPERS Board of Trustees for their trust, support and oversight of

the investment program during these tumultuous times. Most especially, I would like to express my

gratitude to my investment associates as we rise to the challenges and continue our journey to become a

great investment organization delivering the best risk-adjusted returns for our plan participants and an

integral part of OPERS.

Respectfully,

Richard Shafer, CFA

Interim CIO


INVESTMENT PROGRAM

7

Organizational Structure

The Investment Division organizational chart is shown here; function detail is provided within the

organizational charts included in the individual Resources sections.

Fund Management /

Global Bonds

(Deputy CIO)

CIO

Fund

Management

Global Bonds

Internal

Management

Asset

Allocation

U.S. Equity Index

Management

Quantitative

Analysis

Derivatives

Public

Markets

Private

Markets

Private

Equity

Private

Real Estate

Defined

Contribution

Risk Management

Oversight

Infrastructure

Business

Management

Core

Long Duration

Short Duration

TIPS

Cash

U.S. Equity Trading

External Managers

CommoditiesSecurities

Lending

Hedge Funds

U.S. Equity

Internal

Management

External Management

(Deputy CIO)

Investment

Compliance


INVESTMENT PROGRAM

8

Leadership of Principal Groups

The following chart shows the names of the individuals responsible for each principal functional area.

Bill Miller

Deputy CIO

(Internal & Fund

Management)

Deryck Lampe

Senior Portfolio ManagerU.S. Equity Enhanced Index

(Internal)

Rick Shafer

Deputy CIO

(External Management)

Dan German

Risk Manager

Alan Davidson

Compliance Manager

Chris DeRose

Chief Executive Officer

CIO

Vacant


INVESTMENT PROGRAM

9

Office of the CIO

The Chief Investment Officer (CIO) is responsible for manager selection from those recommended by

investment Staff; recommending investment policy and strategy to the Board; investment performance;

overall management of the Investment Division, and; allocating resources within the Division. The CIO also

bears responsibility for risk management and compliance within the Investment Division.

Alan Davidson

Compliance Manager

Pat Edgington

Investment Reporting

Manager

Compliance Analyst

Vacant

Dan German

Risk Manager

Risk Analyst

Vacant

Mary Ann Kabbaz

Executive Assistant

Junior Analyst

Vacant

CIO

Vacant

Chris DeRose

Chief Executive Officer


INVESTMENT PROGRAM

10

Fund Management

Fund Management works closely with other areas of the Investment Division and has both investment and

non-investment responsibilities. The team is responsible for:

Reviewing, monitoring and implementing changes to the asset allocations and related risk budgets for

the Defined Benefit, Health Care and Defined Contribution Funds;

Performing research and analysis on allocations to asset classes, sub-asset classes and portfolios;

Conducting investment risk analysis, assessments and risk management for the Defined Benefit, Health

Care and Defined Contribution Funds;

Providing quantitative research and analysis in support of internal asset management and other internal

group activities;

Management of asset class beta, which includes beta portfolios such as the U.S. Equity Index portfolio

and passive derivatives portfolios (approximately $19 billion managed internally in 13 accounts); and

Equity trading and derivatives trading for internal equity portfolios and asset allocation management.

The deputy CIO reports directly to the CIO and is responsible for assuring all area responsibilities are

performed. Assisting the deputy CIO are two fund managers, a trading manager, an investment adviser

and supporting Staff.

Bill Miller

Deputy CIO

Joan Stack

Trading Manager

Erick Weis

Fund Manager

J.G. Lee

Fund Manager

Matt Sherman

Senior Equity Trader

Christy Ruoff

Equity Trader

Roger Fox

Investment Adviser

David Buchholz

Portfolio Assistant

Josh Biddinger

Portfolio Assistant

Xinyang Gu

Quantitative / Research

Roger Tong

Quantitative / Research

Portfolio Assistant

Vacant

Paul Greff

Senior Portfolio Manager

Fixed Income


INVESTMENT PROGRAM

11

Fund Management (continued)

One fund manager manages asset allocation research activities and is responsible for the investment

performance of beta portfolios such as the U.S. Equity Index portfolio and passive derivatives portfolios as

well as analytical projects and various initiatives. The two quantitative/research Staff and portfolio assistant

II Staff support the Fund Management group under the direction of the fund manager.

The other fund manager is responsible for quantitative research and analytic support for the entire

Investment Division, evaluating the risk-and-return characteristics of the funds and the asset class

composites across the Investment Division.

The trading manager manages two traders and is responsible for executing trades for the Fund

Management group portfolios as well as the internally managed Enhanced Index portfolio and REIT

portfolio. Trading activities in support of the Fund Management group include executing trades for portfolios

during transitions. The trading area executes trades using a variety of tools including electronic algorithmic

and program trading systems and, as such, works closely with the investment portfolio managers and the

quantitative research group to incorporate enhancements into the trading systems. The area also performs

and reviews the analysis of internal transactions from a pre-trade and post-trade perspective using

transactions cost-analysis tools and models.

The investment adviser assists with forward planning as well as operational, internal audit, information

technology, legal, investment accounting and performance matters.

The Fund Management group has 12 positions, one of which is vacant.


INVESTMENT PROGRAM

12

Global Bonds Internal Management

The Global Bonds Internal Management group is currently organized with one senior portfolio manager, four

portfolio managers, six analysts and an investment assistant II. The senior portfolio manager provides

oversight of the group and is responsible for the strategic positioning and investment performance of all the

internally managed bond portfolios.

The leads of the different functional areas work as a team on the Global Bonds Internal Management

investment decision-making process and report to the senior portfolio manager. They also handle the day-

to-day management of the internal portfolios. Authorized individuals in the Global Bonds Internal

Management group handle trade execution.

Two portfolio managers oversee the Core, Long Duration and TIPS portfolios and serve as backups to each

other. They identify major themes, sector weightings and perform portfolio optimization and construction.

The other two portfolio managers oversee the Short Duration, Core Opportunistic and Short Duration

Opportunistic portfolios and serve as backups to each other. They are also responsible for relative value,

individual security analysis and trading within the securitized markets and work closely with the other

portfolio managers to implement securitized asset strategies within the portfolios.

Eric France

Portfolio Manager

Mark Ehresman

Senior Investment

Analyst

Teresa Black

Cash/Securities

Lending Analyst

Todd Soots

Senior Investment

Analyst

Erik Cagnina

Portfolio Manager

Tony Enderle

Senior Investment

Analyst

JoAnn Yocum

Investment Assistant II

Nick Kotsonis

Senior Investment

Analyst

Jerry May

Cash/Securities

Lending Manager

Chris Rieddle

Portfolio Manager

Paul Greff


Fixed Income

eSecLending

Associate

Bill Miller

Deputy CIO

Securitized Products

Analyst

Vacant


INVESTMENT PROGRAM

13

Global Bonds Internal Management (continued)

One senior investment analyst plays a lead role and provides oversight to the credit research group. The

analysts are responsible for assigned industries in the corporate sector, which includes company analysis

and the identification of relative value ideas. The credit analysts, along with the lead analyst, are

responsible for assigned sectors and provide back up to other sectors. They work closely with the portfolio

managers to implement credit strategies within the portfolios. This organizational structure ensures that all

sectors are monitored constantly so that OPERS is in the position to take advantage of marketplace

opportunities.

The cash securities/lending management Staff manage the OPERS cash/securities lending programs

across all asset classes. In addition, these individuals manage the cash portfolios supporting OPERS’

operating liabilities and cash collateral resulting from securities lending activities. There is also one external

eSecLending associate supporting a portion of the securities lending activities.

The Global Bonds Internal Management group manages approximately $27 billion in 12 accounts.


INVESTMENT PROGRAM

14

U.S. Equity Internal Management

The U.S. Equity Internal Management group is organized with a total of nine equity analysts, one portfolio

manager and a senior portfolio manager. The operation has changed substantially over the last 18 months

with a new investment philosophy and investment process. The process is highlighted by a highly

structured investment philosophy focused on maximizing risk adjusted returns. This is achieved through an

intense iterative process between analysts and portfolio managers where each target security is analyzed

across numerous variables to consistently assess relative competitive advantage and the associated risk in

achieving the advantage. The approach is centered on the notion that each security has an intrinsic value

and that it can be identified through thorough modeling and a strong understanding of critical variables.

Although security selection is at the forefront of the approach, a significant amount of quantitative modeling

is used to ascertain the level of exposure to individual variables and insure factor exposure is adequately

contained.

Currently, the U.S. Equity Internal Management group is responsible for the internally managed Enhanced

Index and REIT portfolios valued at approximately $5.4 billion. The Enhanced Index portfolio uses the

Russell1000 as its benchmark and the REIT portfolio is benchmarked against the Wilshire Real Estate

Securities Index (RESI).

Kevin Martin

Senior Analyst

Scott Murray

Portfolio Manager

Deryck Lampe


U.S. Equity Enhanced Index

Jake Lake

Equity Analyst

Tim Swingle

Senior Analyst

Steve Barker

Senior Analyst

Joe Boushelle

Equity Analyst

Brian Langenberg

Senior Analyst

Chris Gregson

Senior Analyst

Mike Parker

Equity Analyst

Senior Analyst

Vacant


INVESTMENT PROGRAM

15

External Management

The External Management group consists of the External Public Markets, Private Equity, Private Real

Estate and Infrastructure teams. External Public Markets includes all external managers pursuing U.S.

Equity, Non-U.S. Equity, High Yield, Emerging Market Debt and Hedge Fund strategies.

Each of these teams develops and implements investment strategies and is responsible for the relative

investment performance of their asset class or functional area. They perform due diligence, select

managers, monitor activities of existing managers and adjust portfolio exposures.

Within all asset classes there is “misfit” risk arising from operating under broadly defined benchmarks for

the asset class while employing managers who pursue narrower strategies in implementation. Through

manager selection, use of derivatives and rebalancing, it is possible to manage this misfit while potentially

adding value in the same way that a portfolio manager seeks relative value in the securities chosen for her

or his portfolio. In addition to manager selection, each of the teams within External Management must

develop and implement strategies to effectively manage benchmark misfit risk.

Portfolio Assistant

Vacant

Rick Shafer

Deputy CIO

Brad Sturm

Portfolio Manager

Real Estate

Dan Sarver

Portfolio Manager

John Blue

Senior Investment

Analyst

DeAnne Rau

Portfolio Manager

Public Markets

Stephen Stuckwisch

Portfolio Manager

Kimberly Van Gundy

Investment

Administration Analyst

Lewis Tracy

Senior Investment

Analyst

Louis Darmstadter

Portfolio Manager

Private Equity

Samir Sidani

Senior Investment

Analyst

Junior Analyst

Vacant

Investment Analyst

Hedge Funds

Vacant

Portfolio Manager

Infrastructure

Vacant

Portfolio Manager

Vacant

Investment Analyst

Vacant


INVESTMENT PROGRAM

16

Investment Governance In addition to the organizational structure described, the CIO utilizes a variety of committees, working

groups and meeting structures to govern the Investment Division’s activities. This internal governance

arrangement enhances collective inputs, retains institutional knowledge, provides documentation of the due

diligence process and other processes, promotes transparency and accountability and formalizes decision-

making processes. Internal governance is designed to combine structure and flexibility to efficiently bring

the appropriate decision makers together on a timely basis and maintain a control environment to minimize

operational risk. We nonetheless are always looking for ways to counteract any “group-think” that enters

the process.

Committee Structure

Investment Related

Compliance

Management

RelatedRisk Related

External Public

Markets Counterparty

Operational

Transition

ManagementU.S. Equity

Real Estate

Private Equity

Defined

Contribution

Oversight

Investment

Strategy Group

Global Bonds

Broker Review

PlanningInfrastructure

Hedge Funds

Index Portfolios

Pricing, Valuation

and Performance

Iran Sudan

Divestiture

Fund Asset

Allocation and

Strategy

Quarterly

Department

Meetings

CIO

Risk Steering

Board

Board

Investment Committee


INVESTMENT PROGRAM

17

The following exhibit illustrates the structure and relationship of the policies within the total System and its

three investment funds.

TOTAL OPERS SYSTEM

DEFINED BENEFITFUND

HEALTH CAREFUND

DEFINED CONTRIBUTIONFUND

Statement ofInvestment

Objectives and PoliciesDefined Benefit Fund


Objectives and PoliciesHealth Care Fund


Objectives and PoliciesDefined Contribution Fund

FUND POLICIES

ASSET CLASS POLICIES

Public Equities Policy

Public Fixed Income Policy

Cash Management Policy

Private Equity Policy

Real Estate Policy

Opportunistic Fund Policy

Member Directed Policy

Hedge Fund Policy (TBD)

Infrastructure Policy (TBD)

Liquidity Policy (TBD)

OTHER INVESTMENT RELATED POLICIES

Broker - Dealer Policy

Derivatives Policy

External Managers’ Insurance Policy

External Public Manager Evaluation Policy

External Public Manager Search Policy

Iran and Sudan Divestment Policy

Material Nonpublic Information Policy

Ohio-Qualified Manager Policy

Personal Trading Policy

Responsible Contractor Policy

Securities Lending Policy

Soft Dollar and Other Brokerage Commission Policies


INVESTMENT PROGRAM

18

The schematic below provides the detail of the committees comprising the internal governance

arrangement. The committees and working groups listed below vary in both the frequency of meetings and

the degree of structure and formality—some provide informal information sharing and some have formal

written charters.

The CIO or deputy CIO’s chair the committees, or provide leadership to the working groups or formal

meetings listed below.

Committees Attendees Purpose Frequency Authority

Broker ReviewStaff and Senior

ManagementMonitor, Review and Approve

Brokers and CommissionsMonthly Approval

ComplianceStaff and Senior

ManagementEscalate and Resolve Compliance

IssuesTwice Monthly Approval

CounterpartyStaff and Senior

ManagementMonitor, Review and Approve

Counterparty LimitsMonthly Approval

Defined ContributionOversight

ExternalManagement Staff

Coordinate with DC team Monthly Discussion

External PublicMarkets

Staff and SeniorManagement

External Public Manager/ HedgeFund Oversight & Selection

Monthly Approval

Fund Asset Allocationand Strategy


Review Asset Allocation andStrategies, Cash Forecasting,

Fund and Portfolio Risk Metrics and Manager Guidelines

Weekly Approval

Global BondsInternal

Management Staff

Perform Sector Reviews andOutlooks, Discuss Portfolio

Composition and Risk Management Issues

Bi-WeeklyPortfolio

Decisions

Index PortfoliosInternal

Management Staff

Review Markets, Strategies and Internally Managed Index

PortfoliosDaily

PortfolioDecisions

InfrastructureInternal

Management StaffPreliminary and Final Transaction

Review As Needed

PortfolioDecisions

Investment StrategyGroup


Floating Agenda Monthly Discussion

continued


INVESTMENT PROGRAM

19

Committees Attendees Purpose Frequency Authority

Operational RiskStaff and Senior

ManagementIdentify and Monitor Risks Arisingfrom Investment Implementation

Quarterly AtMinimum

Discussion

Planning Senior Staff Activity Coordination Monthly Discussion

Pricing, Valuation andPerformance

InternalManagement Staff

Address and Resolve Pricing,Valuation, Performance and

Benchmark IssuesAs Needed Discussion

Private EquityStaff and Senior

ManagementPreliminary and Final Transaction Review

As Needed Approval

Real EstateStaff and Senior

ManagementPreliminary and Final Transaction Review

As Needed Approval

Risk SteeringSenior

ManagementRisk Assessments and

Prioritization Monthly Discussion

TransitionManagement

Int. and Ext.Management Staff

Transition Large AmountsBetween Managers

As NeededPortfolio

Decisions

U.S. EquityInternal

Management StaffStrategy, Tactics, News Flow &

TrainingDaily

PortfolioDecisions

The following committees and working groups have investment Staff representation to facilitate

communication and interaction across OPERS divisions.

Advisors Council

Corporate Governance Working Group

Guiding Council

Iran Sudan Divestiture Committee

Leadership Council

Management Council

Technology Council


INVESTMENT PROGRAM

20

Resources

Staffing

Recruiting and retaining the best and most talented Staff is a critical priority for the Investment Division.

Here is a presentation of anticipated full staffing for 2010:

Target Staffing for Year End 2010

Office of

the CIOFundMgmt.

GlobalBondsInternalMgmt.

U.S. EquityInternalMgmt.

ExternalMgmt.

TotalInvest.

Division

2009 Investment Plan Projected Staffing 11 11 10 11 12 55

Current Staffing 4 11 11 10 10 46

Vacant Positions - To be filled in 2010 4 1 1 1 6 13

Year End 2010 Target Staffing 8 12 12 11 16 59

Status of Open Positions During Fourth Quarter 2009

Position Vacant

Office of the CIO CIO 1

Office of the CIO Junior Analyst 1

Office of the CIO Compliance Analyst 1

Office of the CIO Risk Analyst 1

Fund Management Portfolio Assistant 1

Global Bonds Internal Management Securitized Products Analyst 1

U.S. Equity Internal Management Senior Analyst 1

External Management Junior Analyst 1

External Management Portfolio Manager - Private Equity 1

External Management Investment Analyst - Private Equity 1

External Management Portfolio Assistant 1

External Management Hedge Fund Analyst 1

External Management Portfolio Manager - Infrastructure 1

Total 13


INVESTMENT PROGRAM

21

The following chart compares OPERS’ asset size and staffing as of June 30, 2009 to its peer group.

Individual peers are listed in the table below.

The chart above suggests that the Investment Division staffing level is relatively low compared to its asset

base, particularly given the extent of internal management of assets. The focus of the management team

continues to be on effectively increasing productivity and improving results without significantly increasing

Staff size, except when new responsibilities and asset classes are added.

The following table lists the public pension peer group referenced in the chart above and in other sections

of this Annual Investment Plan.

11 Large State Plans as of 6/30/2009

Investment Staff

As

se

ts (

$ b

illi

on

s)

0 50 100 150 200 250

$200

$150

$100

$50

$0

11 Large State Plans as of 6/30/2009

Peers Assets ($ millions) Investment Staff

California Public Employees' Retirement System $169,417 229

California State Teachers' Retirement System $118,927 100

New York Common Retirement Fund $109,886 45

Washington State Investment Board $95,769 80

Florida State Board of Administration $90,201 65

New Jersey Division of Investment $57,809 70

North Carolina Retirement System $55,953 21

Ohio Public Employees Retirement System $54,281 46

State of Wisconsin Investment Board $52,568 124

Ohio State Teachers Retirement System $47,644 111

Division of Investment Services - State of Georgia $11,534 49


INVESTMENT PROGRAM

22

Staffing Costs

Assuming full staffing levels in 2010, the chart below details the estimated annual cost of salaries, benefits

and incentive compensation for the Investment Division.

By comparison, the estimated total compensation costs for 2009 were $11.16 million or 1.47 basis points on

$76.16 billion in average assets. The increase in total 2010 compensation costs is entirely due to filling

budgeted positions and adding four new ones.

Operating Budget

The Investment Division’s 2010 operating budget (excluding compensation) as of October 8, 2009, was

$6.65 million (this operating budget is subject to change prior to its final approval in late 2009). This

operating budget reflects an increase of $0.62 million, or 10.2% percent, from the 2009 budget.

Estimated 2010 Total Compensation Costs ($ millions)

Office of theCIO

FundMgmt.



ExternalMgmt.

TotalInvest.

Division

Salaries 0.99 1.40 1.49 1.47 2.12 7.47

Benefits 0.30 0.49 0.55 0.55 0.71 2.60

Incentive Compensation 0.00 0.25 0.35 0.35 0.25 1.20

Total Compensation 1.28 2.14 2.40 2.37 3.09 11.27

Average Assets in $ billions NA 18.14 17.38 4.65 29.39 69.56

Compensation in Basis Points NA 1.2 1.4 5.1 1.1 1.62

Operating Budget less Total Compensation ($ millions)

Office of the CIO

FundMgmt.



ExternalMgmt.

TotalInvest.

Division

2009 Operating Budget 1.19 1.17 0.76 0.55 2.36 6.03

2010 Operating Budget 1.47 1.31 0.86 0.61 2.40 6.65

Percent Change 23.1% 12.1% 13.3% 10.2% 1.8% 10.2%

Percent of Total 22.1% 19.8% 12.9% 9.2% 36.1% 100.0%

Average Assets in $ billions NA 18.14 17.38 4.65 29.39 69.56

Operating Budget in Basis Points NA 0.72 0.49 1.31 0.82 0.96


INVESTMENT PROGRAM

23

Quotes & DataFeeds

26.64%

Audit/Legal/Consulting Services

40.75%

Analytics10.52%

Research8.98%

Training & Travel6.66%

IT6.40%Office Supplies &

Equipment0.05%

The chart above shows the allocation of the operating expenses across major budget categories.

The primary expenses for Audit/Legal/Consulting services are for the Division and individual asset

classes. For 2010, estimated Audit/Legal/Consulting fees total $1.85 million, which is 28% of the total

operating budget.

The primary expenses in the Quotes and Data Feeds category are for data and services provided by

vendors such as Bloomberg, Bloomberg POMS, Thomson Reuters and Factset.

The Analytics category includes tools and analytics provided by BARRA, Russell, Yield Book and

Quantitative Services Group.

Research expenses are comprised of independent research services such as Thomson Reuters,

Moody's Credit Reports, MSCI Index Service, Intex, Trepp, Global Trading Analytics and RiskMetrics.

Training and Travel expenses include all business travel, which is primarily for due diligence on new

investments, monitoring existing investments, enhancing operational capabilities and promoting Staff’s

educational and professional growth.

IT expenses are for the Charles River Trade Order Management System, eFront and Eagle PACE data

warehouse.

2010 Operating Budget


INVESTMENT PROGRAM

24

Management Fees

The expected annual management fees by asset class for the Investment Division are in the chart below.

The estimate of fees is based on the 2010 estimated average market value for the Defined Benefit and

Health Care Funds, as detailed in the average assets section below.

There is a very obvious difference between the scale of internal and external management fees. Within

U.S. Equity, the high proportion of passive assets contributes to the much lower internal management fees,

reducing them by more than half over what they would be for active assets. However, the overwhelming

portion of the difference between external and internal is that it is simply cheaper to manage assets

internally (lower salaries and incentives, lower rent, less travel, no marketing costs, no stand-alone

business expenses and no profit margin).

Average Assets

($ millions)

AnnualFee

($ millions)

AnnualFee

(bps)

Average Assets

($ millions)

AnnualFee

($ millions)

AnnualFee

(bps)

Public Equity 19,191 48.2 25.1 21,723 2.2 1.0

U.S. Equity 4,386 10.5 23.9 21,723 2.2 1.0

Non-U.S. Equity 14,805 37.7 25.4 NA NA NA

Public Fixed Income 1,449 6.3 43.3 17,383 1.7 1.0

Core Fixed 109 0.4 35.0 8,357 0.6 0.7

Long Bonds NA NA NA 5,492 0.4 0.7

TIPS NA NA NA 2,342 0.1 0.5

Short Bonds NA NA NA 575 0.2 3.9

High Yield 953 4.1 43.4 NA NA NA

Emerging Mkt Debt 387 1.8 45.6 NA NA NA

Liquidity NA NA NA 618 0.3 5.4

Alternatives 8,732 139.8 160.1 1,083 0.3 3.1

Private Equity 2,777 74.0 266.4 NA NA NA

Real Estate 5,210 56.5 108.4 NA NA NA

REIT NA NA NA 708 0.3 3.9

Opportunistic/Hedge Funds 569 6.4 112.5 357 0.0 0.6

Infrastructure 177 2.9 166.1 NA NA NA

Commodities NA NA NA 18 0.0 19.0

Total Fund 29,373 194.3 66.1 40,190 4.2 1.0

Estimate of External and Internal Management Fees in Dollars and Basis Points

Total for 2010

External Management Internal Management


INVESTMENT PROGRAM

25

Average Assets

The table below shows a summary of actual and estimated assets for the Defined Benefit and Health Care Funds.

The combined assets are based on 2010 target portfolio and asset class allocations for the Defined Benefit

and Health Care Funds. The estimated assets reflect the Defined Benefit and Health Care Funds

estimated market values, returns and cash flows as detailed in the Defined Benefit and Health Care Funds

Strategies section of this plan.

Total Costs

The estimated total cost of the investment program in 2010 will be $217.25 million or 31.2 basis points of

assets under management. This compares to the total costs in the 2009 Annual Investment Plan of $197.42

million or 25.9 basis points of assets under management. The increase reflects the growing allocation to

more complex externally managed asset classes such as Private Equity and Private Real Estate.

CEM Benchmarking, Inc. is an independent benchmarking firm for pension plans and provides an

assessment of OPERS investment operations relative to a global set of peers. In 2008, OPERS actual cost

of 21.5 basis points was below the benchmark cost of 26.3 basis points. This savings of 4.8 basis points

amounts to $33.4 million on average assets of $69.56 billion.

Actual and Estimated AssetsCombined Defined Benefit and Health Care Funds

($ billions)

Office of theCIO

FundMgmt.



ExternalMgmt.

TotalInvest.

Division

August 31, 2009 Actual Unaudited NA $17.2 $16.3 $5.9 $26.1 $65.5

December 31, 2009 Estimated NA $17.6 $17.3 $5.2 $28.2 $68.3

Average 2010 Estimated NA $18.1 $17.4 $4.7 $29.4 $69.6

December 31, 2010 Estimated NA $16.9 $17.5 $3.7 $32.7 $70.8

Estimated 2010 Total Costs

($ millions)

Office of theCIO

FundMgmt.



ExternalMgmt.

TotalInvest.

Division% ofTotal

Total Compensation 1.28 2.14 2.37 2.40 3.09 11.27 5.2%

Operating Budget less Compensation 1.47 1.31 0.61 0.86 2.40 6.65 3.1%

Manager Fees 194.27 194.27 89.4%

Custody and Overhead 5.05 2.3%

Total Costs 2.75 3.45 2.98 3.25 199.76 217.25 100.0%

Percent of Total 1.3% 1.6% 1.4% 1.5% 91.9%

Average 2009 Asset Size ($ b) NA 18.14 4.65 17.38 29.39 69.56

Costs in Basis Points to Asset Class NA 1.9 6.4 1.9 68.0 NA

Costs in Basis Points to Total Fund 0.4 0.5 0.4 0.5 28.7 31.2


FundStrategies


FUND STRATEGIES

26

Defined Benefit Fund

Expected Asset Growth

The table below summarizes Staff’s estimate of market value and ranges for the Defined Benefit Fund at

December 31, 2010. The pessimistic and optimistic cases are based on the 2010 assumptions listed in the

Defined Benefit Fund’s Return and Risk section.

The anticipated market value of $56.6 billion for December 31, 2009 is derived by a smoothing projection

that incorporates both the actual Defined Benefit Fund return through August 31, 2009 and the expected

full-year return for 2009 presented in the 2009 Annual Investment Plan.

Defined Benefit Fund2010 Expected Asset Growth

Estimated Market Values, Returns and Cash Flows

PessimisticCase

BaseCase

OptimisticCase

12/31/09 Market Value ($ billions) $56.6 $56.6 $56.6

Expected Total Return -9.9% 7.6% 27.4%

Expected Investment Gain ($ billions) ($5.6) $4.3 $15.5

Expected Cash Flow ($ billions) ($2.0) ($2.0) ($2.0)



FUND STRATEGIES

27

Asset Allocation

The 2010 target asset allocation and ranges for the Defined Benefit Fund reflect an estimate by Staff of the

progress that may be made towards the new asset allocations adopted in 2009. They are shown below

along with actual allocations of comparable peers as of June 30, 2009.

*Peer group defined previously in the Investment Program section of this plan.

The internally managed opportunistic distressed fixed income assets are included in the

Opportunistic/Hedge Funds asset class. The asset mix shown above moves the Defined Benefit Fund

toward the asset allocation targets that were developed based on an asset-liability study completed in 2009.

Throughout 2010 and beyond, Staff will work with OPERS’ Advisors to recommend certain enhancements

to the asset mix and asset management strategies targeted at raising the expected return within acceptable

risk levels. While not all of these strategies have been clearly defined, several are described in the Asset

Class Strategies section later in this plan.

Asset Class8/31/2009

Actual12/31/10Target Range

PeerGroup*

Public Equity 64.4% 58.3% 40% to 60% 53.8%

U.S. Equity 43.2% 36.8% 20% to 30% 34.4%

Non-U.S. Equity 21.1% 21.5% 20% to 30% 19.4%

Public Fixed Income 22.9% 24.3% 15% to 32% 29.6%

Core Fixed 12.0% 11.7% 6% to 12% 28.1%

Long Bonds 9.3% 9.4% 6% to 12% NA

High Yield 0.7% 2.0% 2% to 8% 1.5%

Liquidity 0.9% 1.1% 0% to 4% NA

Alternatives 12.7% 17.4% 8% to 30% 16.6%

Private Equity 3.9% 5.2% 0% to 14% 6.2%

Real Estate 8.2% 10.0% 0% to 14% 6.8%

Opportunistic/Hedge Funds 0.6% 1.6% 0% to 5% 3.6%

Infrastructure 0.0% 0.6% 0% to 3% NA

Total Defined Benefit Fund 100.0% 100.0% 100.0%


FUND STRATEGIES

28

Estimated assets in dollar amounts are listed below and are based on December 31, 2010 target

allocations.

Estimated assets represent Staff’s general expectation for progress towards transitioning assets to the

Board’s recently approved long-term asset allocation targets. Actual assets at future points in time will be

within Board-approved ranges but will also reflect market outcomes, opportunities for Staff to transition

assets in an efficient and cost effective manner and the availability of attractive investment opportunities. It

is estimated that the Board’s long-term asset allocation targets will substantially be achieved within the next

three years. Private Market asset classes, such as Private Equity and Real Estate, will continue to be

invested according to their long-term pacing models and may take five years to fully reach Board targets.

Details of expected Private Market commitments and fundings are provided in the Asset Class Strategies

section of this plan.

ActualAssets

($ billions)

EstimatedAssets

($ billions)Target

Allocation

8/31/2009 12/31/2009 2010 Average 12/31/2010 12/31/2010

Public Equity $35.0 $35.4 $34.9 $34.4 58.3%

U.S. Equity $23.5 $24.1 $22.9 $21.7 36.8%

Non-U.S. Equity $11.5 $11.3 $12.0 $12.7 21.5%

Public Fixed Income $12.5 $13.6 $14.0 $14.3 24.3%

Core Fixed $6.5 $7.3 $7.1 $6.9 11.7%

Long Bonds $5.1 $5.4 $5.5 $5.5 9.4%

High Yield $0.4 $0.4 $0.8 $1.2 2.0%

Liquidity $0.5 $0.4 $0.5 $0.7 1.1%

Alternatives $6.9 $7.6 $8.9 $10.2 17.4%

Private Equity $2.1 $2.5 $2.8 $3.1 5.2%

Real Estate $4.5 $4.5 $5.2 $5.9 10.0%

Opportunistic/Hedge Funds $0.3 $0.6 $0.8 $0.9 1.6%

Infrastructure $0.0 $0.0 $0.2 $0.4 0.6%

Total Defined Benefit Fund $54.4 $56.6 $57.8 $58.9 100.0%


FUND STRATEGIES

29

Composition of Investment Portfolio

The Public Equity and Public Fixed Income asset classes are managed identically for both the Health Care

and Defined Benefit Funds; however, the allocations to all asset classes may vary as they reflect unique

circumstances for each fund. The table below shows the Defined Benefit Fund’s projected June 30, 2010

allocation between internal and external asset management by asset class along with actual allocations of

comparable peers as of June 30, 2009.

*Peer group defined previously in the Investment Program section.

The table shows that OPERS is similar to its peer group overall but differs in the much higher use of internal

management for U.S. Equity and Public Fixed Income. The amount shown as OPERS internally managed

Opportunistic/Hedge Funds represents the opportunistic distressed fixed income assets. Internal assets

under management have declined for both OPERS and peers from the prior year (see 2009 Annual

Investment Plan). OPERS is somewhat dissimilar from its peer group in exclusively using external asset

management in the Non-U.S. Equity asset class. As noted in the Report from the CIO, during 2010 Staff

will further explore managing passive Non-U.S. Equity assets internally.

OPERS’ use of internal asset management provides many advantages including:

Flexibility: Rebalancing decisions are executed efficiently and cost-effectively. Control over the assets

enables OPERS to reposition its portfolios as opportunities arise and market conditions change.

Cost control: Asset management is a high-margin business, and over the long term, external asset

management fees can create a material drag on net returns. External asset management fees typically

range from a multiple of six to 20 times the cost of managing assets internally. Where internally

managed portfolios can provide very cost-effective exposure to asset beta, or competitive alpha to

externally managed assets, there is a major benefit to OPERS from internal management.

Asset Class

Internal Management External Management

OPERS Peer Group* OPERS Peer Group*

Public Equity

U.S. Equity 83.2% 63.2% 16.8% 36.8%

Non-U.S. Equity 0.0% 30.1% 100.0% 69.9%

Public Fixed Income

Core Fixed 98.7% 84.8% 1.3% 15.3%

Long Bonds 100.0% NA 0.0% NA

High Yield 0.0% 0.7% 100.0% 99.3%

Liquidity 100.0% NA 0.0% NA

Alternatives

Private Equity 0.0% 1.7% 100.0% 98.3%

Real Estate 0.0% 13.8% 100.0% 86.2%

Opportunistic/Hedge Funds 33.7% 0.0% 66.3% 100.0%

Infrastructure 0.0% NA 100.0% NA

Weighted Averages 53.3% 52.5% 46.7% 47.5%


FUND STRATEGIES

30

Market insight: Internal asset management provides important information across asset classes to help

in decision-making processes such as:

External manager hiring and oversight—improves Staff’s ability to assess external manager

strengths and weaknesses.

Across markets—frequently, Staff can leverage information garnered from one asset class

to support decision-making in another asset class.

More effective payment of pension and health care benefits, operating expenses and funding of external

managers – cash to pay benefits, operating expenses or fund external managers can be raised

immediately from internally managed assets whereas raising cash from external managers can take

weeks or longer.

The table below shows the Defined Benefit Fund’s projected June 30, 2010 allocation between active and

passive asset management by asset class along with actual allocations of comparable peers as of June 30,

2009. The share of active management for OPERS will necessarily rise to reflect the new larger allocations

to alternatives and liquid market strategies that cannot be effectively indexed, such as high yield.

*Peer group defined previously in the Investment Program section.

Asset Class

Active Management Passive Management

OPERS Peer Group* OPERS Peer Group*

Public Equity

U.S. Equity 31.9% 40.9% 68.1% 59.1%

Non-U.S. Equity 82.5% 84.3% 17.5% 15.7%

Public Fixed Income

Core Fixed 100.0% 81.8% 0.0% 18.2%

Long Bonds 100.0% NA 0.0% NA

High Yield 100.0% 83.3% 0.0% 16.7%

Liquidity 100.0% NA 0.0% NA

Alternatives

Private Equity 100.0% 100.0% 0.0% 0.0%

Real Estate 100.0% 99.7% 0.0% 0.3%

Opportunistic/Hedge Funds 100.0% 75.0% 0.0% 25.0%

Infrastructure 100.0% NA 0.0% NA

Weighted Averages 71.2% 70.3% 28.8% 29.7%


FUND STRATEGIES

31

Return and Risk

The Defined Benefit Fund’s performance objective is to earn a long-term rate of return that exceeds the

return of the Defined Benefit Fund policy benchmark within an appropriately constrained risk framework.

The table shows expected returns for 2010 along with its ranges. These are the ‘beta’ returns expected

from each asset class, without regard to over- or under-performance relative to the benchmarks.

2010 Policy Return Assumptions

Asset Classes Pessimistic Base Optimistic

Public Equity -10.0% 8.4% 28.5%

U.S. Equity -10.1% 8.4% 28.5%

Non-U.S. Equity -9.9% 8.4% 28.5%

Public Fixed Income -3.7% 3.7% 13.7%

Core Fixed -1.1% 3.2% 10.6%

Long Bonds -6.5% 4.1% 16.7%

High Yield -11.0% 7.2% 28.2%

Liquidity 0.3% 1.0% 2.3%

Alternatives -14.2% 8.2% 35.4%

Private Equity -16.7% 9.6% 41.2%

Real Estate -14.3% 7.6% 35.1%

Opportunistic/Hedge Funds -4.4% 7.0% 18.6%

Infrastructure -14.2% 8.2% 27.8%

Total Return -9.9% 7.6% 27.4%


FUND STRATEGIES

32

Active Return and Risk

The following table details the expected excess performance, or active return, and the tracking error

(volatility of active returns) for each asset class, as well as the overall fund. Expected active returns for

several items in the following table are set at zero. Typically, this is because the benchmark chosen already

contemplates excess returns. The Hedge Fund benchmark is LIBOR + 4%. Historically, such a return

would approximate an equity return. However, this asset class is not normally expected to achieve equity

returns, but rather to compound capital at a rate much higher than cash by preserving capital in bad times

and earning it in good times. Therefore, a real return of 4% already contemplates excess returns.

For real estate, the benchmark return is gross of fees while the expected return is net of fees. In such a

high fee asset class, earning net returns that equal gross returns means that excess returns will be

achieved by 100 or more basis points. The same logic applies to the infrastructure allocation. The

expected excess return of zero in the liquidity allocation contemplates that seeking excess returns is

counter-productive when the purpose of the allocation is to provide safety and liquidity in all investment

environments.

Tracking error is a standard measure of risk used in public market asset classes; we have extended it to

alternatives as well. Where markets are generally more efficient, such as U.S. equity and public fixed

income, the outperformance goals are modest. In less efficient markets, such as private equity, the goals

for incremental return above the indices are more aggressive.


FUND STRATEGIES

33

The table shows an anticipated active management contribution of 33 basis points to the fund’s return.

The 80 basis points of estimated tracking error indicates a 68% probability that the active return will be in a

range of -47 basis points to +113 basis points. This confidence interval is arrived at by subtracting the

tracking error from, and adding the tracking error to, the expected active return. The target contribution to

fund performance of 33 basis points for 2010 is equal to the 33 basis points projected for 2009.

The figures shown in the table above are aggregated from the component portfolios in each of the asset

classes. The tracking error that results at the fund level is lower than would be suggested by a simple

weighted average due to the diversifying effects of the active return interaction among the managers and

the asset classes.

Schedule of Expected Performance and Volatility

Average Policy

Allocationin Percent

Active ReturnPerformance

Objectives (bps)

Active ReturnPerformanceContribution

(bps)

TargetTracking

Error(bps)

TargetInformation

Ratio

Public Equity 60.6%

U.S. Equity 39.8% 20 8.0 32 0.63

Non-U.S. Equity 20.7% 75 15.6 115 0.65

Public Fixed Income 24.2%

Core Fixed 12.3% 23 2.8 75 0.31

Long Bonds 9.5% 15 1.4 100 0.15

High Yield 1.4% 82 1.1 325

Liquidity 0.9% 0 0.0 30 0.00

Alternatives 15.2%

Private Equity 4.6% 100 4.6 750 0.13

Real Estate 9.0% 0 0.0 600 0.00

Opportunistic/Hedge Funds 1.3% 0 0.0 300 0.00

Infrastructure 0.3% 0 0.0 300 0.00

Total Defined Benefit Fund 100.0% NA 33 80 0.41


FUND STRATEGIES

34

The return estimates below were derived from the asset class return expectations developed by internal

Staff. The single-point estimate return of 7.56% is comprised of an expected return of 7.23% from the

policy mix and an additional contribution of 0.33% from active management.

Due to rounding, the total return may not appear to sum correctly from the sources of return. Variability risk

is measured by standard deviation for policy and total risk and by tracking error for active risk.

The information ratio compares the active return of an asset to its most relevant benchmark index and is a

measure of risk-adjusted return. The Sharpe Ratio compares the excess return of an asset against the

return of the risk-free asset.

As stated in the Report from the CIO, fund investments are measured and monitored within a specific

framework, which identifies return and risk from three sources:

Policy: The return and risk inherent in the policy asset mix (allocation) adopted by the Board. The mix

has expected return and variability characteristics that arise directly from the underlying asset classes.

The expected return of the OPERS Defined Benefit Fund policy mix is 7.23% for 2010 with an

estimated risk, or variability, of 10.70%. As such, approximately two-thirds of the time, actual annual

policy returns are expected to be within a range of –3.47% to +17.93%.

Tactical: The return and risk introduced by deviations from the policy asset mix. The table above does

not show any excess expected return from tactical asset allocation activities.

Active: The return and risk introduced by active management (security selection).

In summary, the total expected return of the Defined Benefit Fund in 2010 is 7.56%, which is the sum of the

expected policy return of 7.23% and active return of 0.33%. The estimated risk anticipated to achieve this

return is the combination of the policy, tactical and active risk, which is 10.70%.

2010 Total Return Assumptions

Sources of Return Pessimistic Base Optimistic

Policy -9.11% 7.23% 25.98%

Tactical -0.30% 0.00% 0.30%

Active -0.47% 0.33% 1.13%

Total Return -9.88% 7.56% 27.41%

2010 Total Risk and Risk for Return Assumptions

Sources of RiskVariability

RiskInformation

RatioSharpeRatio

Policy 10.50% 0.59

Tactical 0.30%

Active 0.80% 0.41

Total Risk 10.70% 0.61


FUND STRATEGIES

35

Health Care Fund


The table below summarizes Staff’s estimate of market value and ranges for the Health Care Fund at

December 31, 2010. The pessimistic and optimistic cases are based on the 2010 assumptions listed in the

Health Care Fund’s Return and Risk section.

The anticipated market value of $11.9 billion for December 31, 2009 is derived by a smoothing projection

that incorporates both the actual Health Care Fund return through August 31, 2009 and the expected full

year return for 2009 presented in the 2009 Annual Investment Plan.

Health Care Fund2010 Expected Asset Growth

Estimated Market Values, Returns and Cash Flows

PessimisticCase

BaseCase

OptimisticCase


Expected Total Return -6.4% 6.5% 21.8%

Expected Investment Gain ($ billions) ($0.7) $0.8 $2.5

Expected Cash Flow ($ billions) ($0.5) ($0.5) ($0.5)



FUND STRATEGIES

36

Asset Allocation

The 2010 target asset allocation and ranges for the Health Care Fund reflect Staff’s estimate of the

progress that will be made towards the new asset allocations adopted in 2009, and are shown below.

There is no peer universe for health care funds run by comparable large public pension plans. The

internally managed opportunistic distressed fixed income assets are included in the Opportunistic/Hedge

Funds asset class. The asset mix shown above moves the Health Care Fund toward the asset allocation

targets that were developed based on an asset-liability study completed in 2009.

Throughout 2010 and beyond, Staff will work with OPERS’ Advisors to recommend certain enhancements

to the asset mix and asset management strategies targeted at raising the expected return within acceptable

risk levels. While not all of these strategies have been clearly defined, several are described in the Asset

Class Strategies section later in this plan.

Asset Class8/31/2009

Actual12/31/10Target Range

Public Equity 53.1% 49.1% 47% to 63%

U.S. Equity 28.4% 26.0% 23.5% to 31.5%

Non-U.S. Equity 24.7% 23.2% 23.5% to 31.5%

Public Fixed Income 39.8% 42.7% 26% to 42%

Core Fixed 6.2% 13.0% 17.5% to 25.5%

TIPS 19.3% 19.7% 0% to 7.5%

Short Bonds 9.9% 0.0% 0% to 10%

High Yield 0.6% 1.9% 0% to 6%

Emerging Mkt Debt 3.0% 3.6% 1% to 9%

Liquidity 0.7% 0.5% 0% to 4%

Alternatives 7.1% 8.2% 2% to 14%

REIT 6.1% 6.0% 2% to 10%

Opportunistic/Hedge Funds 0.9% 1.9% 0% to 8%

Commodities 0.0% 0.3% 0% to 2%

Total Health Care Fund 100.0% 100.0%


FUND STRATEGIES

37

Estimated assets in dollar amounts are listed below and are based on December 31, 2010 target

allocations.

Estimated assets represent Staff’s general expectation for progress towards transitioning assets to the

Board’s recently approved long-term asset allocation targets. Actual assets at future points in time will be

within the Board approved ranges but will also reflect market outcomes, opportunities for Staff to transition

assets in an efficient and cost effective manner and the availability of attractive investment opportunities.

It is estimated that the Board’s long-term asset allocation targets will substantially be achieved within the

next three years.

ActualAssets

($ billions)

EstimatedAssets

($ billions)Target

Allocation

8/31/2009 12/31/2009 2010 Average 12/31/2010 12/31/2010

Public Equity $5.9 $6.2 $6.0 $5.9 49.1%

U.S. Equity $3.2 $3.3 $3.2 $3.1 26.0%

Non-U.S. Equity $2.7 $2.9 $2.8 $2.8 23.2%

Public Fixed Income $4.4 $4.7 $4.9 $5.1 42.7%

Core Fixed $0.7 $1.2 $1.4 $1.6 13.0%

TIPS $2.1 $2.3 $2.3 $2.4 19.7%

Short Bonds $1.1 $0.7 $0.6 $0.5 4.0%

High Yield $0.1 $0.1 $0.1 $0.2 1.9%

Emerging Mkt Debt $0.3 $0.3 $0.4 $0.4 3.6%

Liquidity $0.1 $0.1 $0.1 $0.1 0.5%

Alternatives $0.8 $0.8 $0.9 $1.0 8.2%

REIT $0.7 $0.7 $0.7 $0.7 6.0%

Opportunistic/Hedge Funds $0.1 $0.1 $0.2 $0.2 1.9%

Commodities $0.0 $0.0 $0.0 $0.0 0.3%

Total Health Care Fund $11.1 $11.7 $11.8 $11.9 100.0%


FUND STRATEGIES

38

Composition of Investment Portfolio

The Public Equity and Public Fixed Income asset classes are managed identically for both the Health Care

and Defined Benefit Funds; however, the allocations to all asset classes vary as they reflect unique

circumstances for each fund. The table below shows the Health Care Fund’s projected June 30, 2010

allocation between internal and external asset management by asset class.

There is no peer universe for health care funds run by comparable large public pension plans. The amount

shown as OPERS internally managed Opportunistic/Hedge Funds represents the opportunistic distressed

fixed income assets.

The Health Care Fund utilizes a higher proportion of more liquid securities with no Private Real Estate or

Private Equity holdings due to the shorter duration of this fund relative to the Defined Benefit Fund.

Asset ClassInternal Management

OPERSExternal Management

OPERS

Public Equity

U.S. Equity 83.2% 16.8%

Non-U.S. Equity 0.0% 100.0%

Public Fixed Income

Core Fixed 11.7% 88.3%

TIPS 100.0% 0.0%

Short Bonds 100.0% 0.0%

High Yield 0.0% 100.0%

Emerging Mkt Debt 0.0% 100.0%

Liquidity 100.0% 0.0%

Alternatives

REIT 100.0% 0.0%

Opportunistic/Hedge Funds 48.2% 51.8%

Commodities 100.0% 0.0%

Weighted Averages 50.5% 49.5%


FUND STRATEGIES

39

The table below shows the Health Care Fund’s projected June 30, 2010 allocation between active and

passive asset management by asset class. The share of active management for OPERS will necessarily

rise to reflect the new larger allocations to alternatives and liquid market strategies that cannot be

effectively indexed, such as high yield and emerging market debt.

There is no peer universe for health care funds run by comparable large public pension plans. Passive

management is utilized in the more-efficient U.S. Equity asset class and to a lesser extent in the Non-U.S.

Equity asset class. The remainder of the fund is substantially actively managed.

A much higher proportion of the Health Care Fund (78%) is actively managed than for the Defined Benefit

Fund (71.2%). This primarily reflects a lower allocation to U.S. Equity in the Health Care Fund since this

asset class is predominantly managed passively. The Health Care Fund has other asset allocation

differences including that a higher proportion is allocated to publicly-traded asset classes and the Real

Estate allocation within alternatives is accessed through actively managed public securities due to their

greater liquidity.

Asset ClassActive Management

OPERSPassive Management

OPERS

Public Equity

U.S. Equity 31.9% 68.1%

Non-U.S. Equity 82.5% 17.5%

Public Fixed Income

Core Fixed 100.0% 0.0%

TIPS 100.0% 0.0%

Short Bonds 100.0% 0.0%

High Yield 100.0% 0.0%

Emerging Mkt Debt 100.0% 0.0%

Liquidity 100.0% 0.0%

Alternatives

REIT 100.0% 0.0%

Opportunistic/Hedge Funds 100.0% 0.0%

Commodities 0.0% 100.0%

Weighted Averages 74.0% 26.0%


FUND STRATEGIES

40

Return and Risk

The Health Care Fund’s performance objective is to earn a long-term rate of return that exceeds the return

of the Health Care Fund policy benchmark within an appropriately constrained risk framework. The table

shows expected returns for 2010 along with its ranges. These are the ‘beta’ returns expected from each

asset class, without regard to over- or under-performance relative to the benchmarks.

2010 Policy Return Assumptions

Asset Classes Pessimistic Base Optimistic

Public Equity -10.0% 8.4% 28.5%

U.S. Equity -10.1% 8.4% 28.5%

Non-U.S. Equity -9.9% 8.4% 28.5%

Public Fixed Income -1.5% 3.2% 11.4%

Core Fixed -1.1% 3.2% 10.6%

TIPS -0.1% 2.5% 10.2%

Short Bonds -1.0% 2.8% 7.4%

High Yield -11.0% 7.2% 28.2%

Emerging Mkt Debt -8.7% 6.5% 22.7%

Liquidity 0.3% 1.0% 2.3%

Alternatives -4.6% 7.0% 18.7%

REIT -4.4% 7.0% 18.6%

Opportunistic/Hedge Funds -4.4% 7.0% 18.6%

Commodities -13.2% 4.6% 24.3%

Total Return -6.4% 6.5% 21.8%


FUND STRATEGIES

41


The table below details the expected excess performance, or active return, and the tracking error (volatility

of active returns) for each asset class, as well as the overall fund. Tracking error is a standard measure of

risk used in public market asset classes; we have extended it to alternatives as well. Where markets are

more efficient, such as U.S. equity and public fixed income, the outperformance goals are modest.

The table shows an anticipated active management contribution of 39 basis points to the fund’s return. The

45 basis points of estimated tracking error indicates a 68% probability that the active return will be in a

range of -6 basis points to +84 basis points. This confidence interval is arrived at by subtracting the

tracking error from, and adding the tracking error to, the expected active return. The target contribution to

fund performance of 39 basis points for 2010 is slightly higher than the 34 basis points projected for 2009

primarily due to a higher performance objective for the Non-U.S. Equity asset class.

The figures shown in the table above are aggregated from the component portfolios in each of the asset

classes. The tracking error that results at the fund level is lower than would be suggested by a simple

weighted average due to the diversifying effects of the active return interaction among the managers and

the asset classes.


AveragePolicy

Allocation in Percent

Active ReturnPerformanceObjectives

(bps)

Active ReturnPerformanceContribution

(bps)

TargetTracking

Error(bps)

Target Information

Ratio

Public Equity 51.0%

U.S. Equity 27.2% 20 5.4 32 0.63

Non-U.S. Equity 23.8% 75 17.9 115 0.65

Public Fixed Income 41.3%

Core Fixed 11.5% 23 2.6 75 0.31

TIPS 19.8% 15 3.0 50 0.30

Short Bonds 4.8% 25 1.2 75 0.33

High Yield 1.2% 82 1.0 325 0.25

Emerging Mkt Debt 3.2% 156 5.1 385 0.41

Liquidity 0.6% 0 0.0 30 0.00

Alternatives 7.6%

REIT 6.0% 50 3.0 200 0.25

Opportunistic/Hedge Funds 1.4% 0 0.0 300 0.00

Commodities 0.1% 0 0.0 300 0.00

Total Health Care Fund 100.0% NA 39.3 45 0.87


FUND STRATEGIES

42

The return estimates below were derived from the asset class return expectations developed by internal

Staff. The single-point estimate return of 6.52% is comprised of an expected return of 6.12% from the

policy mix and an additional contribution of 0.39% from active management.

Due to rounding, the total return may not appear to sum correctly from the sources of return. Variability risk

is measured by standard deviation for policy and total risk and by tracking error for active risk.

The information ratio compares the active return of an asset to its most relevant benchmark index and is a

measure of risk-adjusted return. The Sharpe Ratio compares the excess return of an asset against the

return of the risk free asset.

As stated in the Report from the CIO, fund investments are measured and monitored within a specific

framework, which identifies return and risk from three sources:

Policy: The return and risk inherent in the policy asset mix (allocation) adopted by the Board. The mix

has expected return and variability characteristics that arise directly from the underlying asset classes.

The expected return of the OPERS Health Care Fund policy mix is 6.12% for 2010 with an estimated

risk, or variability, of 8.70%. As such, approximately two-thirds of the time, actual annual policy returns

are expected to be within a range of –2.58% to +14.82%.

Tactical: The return and risk introduced by deviations from the policy asset mix. The table above does

not show any excess expected return from tactical asset allocation activities.

Active: The return and risk introduced by active management (security selection).

In summary, the total expected return of the Health Care Fund in 2010 is 6.52%, which is the sum of the

expected policy return of 6.12% and active return of 0.39%. The estimated risk anticipated to achieve this

return is the combination of the policy, tactical and active risk, which is 8.70%.

2010 Total Return Assumptions

Sources of Return Pessimistic Base Optimistic

Policy -6.04% 6.12% 20.68%

Tactical -0.30% 0.00% 0.30%

Active -0.06% 0.39% 0.84%

Total Return -6.39% 6.52% 21.83%

2010 Total Risk and Risk for Return Assumptions

Sources of RiskVariability

RiskInformation

RatioSharpeRatio

Policy 8.50% 0.60

Tactical 0.30%

Active 0.45% 0.87

Total Risk 8.70% 0.63


FUND STRATEGIES

43

Defined Contribution Fund


Since its inception on January 2, 2003 through August 31, 2009, the Defined Contribution Fund’s assets

have grown to over $300 million. Asset growth has averaged approximately $50 million every 12 months.

Future growth of the Defined Contribution Fund assets is expected to be equal to, or slightly above,

historical averages due to the addition of nearly 2,000 new participants each year.

The OPERS Target Date Funds were introduced on October 1, 2008. In June 2010, Staff will be adding the

Bond Index Fund, the Non-U.S. Stock Index Fund and the OPERS Target 2055 Fund. In December 2010,

the OPERS Target 2010 Fund will be transitioning into the OPERS Target Payout Fund as part of the

normal phasing of Target Date Funds.

The following table shows the distribution of assets across the various OPERS investment options within

the Defined Contribution Fund as of August 31, 2009.

Defined Contribution Fund Assets

OPERS Investment Options

Assets UnderManagement ($ millions)

8/31/09

Core Funds

OPERS Stable Value Fund $28.0

OPERS Bond Index Fund 0.0

OPERS Bond Fund 15.0

OPERS Stock Index Fund 25.4

OPERS Large Cap Fund 18.5

OPERS Small Cap Fund 15.7

OPERS Non-U.S. Stock Index Fund 0.0

OPERS Non-U.S. Stock Fund 21.1

Target Date Funds

OPERS Target Payout Fund 0.6

OPERS Target 2010 Fund 6.5










Total $311.2


FUND STRATEGIES

44

Asset Allocation

The target asset allocation and ranges for the Target Date Funds shown in the tables below will be effective

from June 25, 2010 to June 30, 2011. Target asset allocations for Target Date Funds migrate over time with

the ratio of equities to fixed income becoming more conservative as the target date approaches the

retirement date.

The assets of the Target Date Funds were initially allocated across the six existing core funds. Two major

changes for the Target Date Funds are in progress for the first or second quarter of 2010. The underlying

funds will use passive options, where available, and include treasury inflation-protected securities (TIPS),

long duration bonds and high yield bonds as new asset classes to improve risk-adjusted return expectations

and enhance diversification.

Underlying Funds

Stable Value Bond Index TIPS Long Duration

OPERS Target Date Funds Target Range Target Range Target Range Target Range

OPERS Target Payout Fund 25% +/- 3.7% 32% +/- 4.0% 13% +/- 3.4% 0% +/- 0%

OPERS Target 2015 Fund 5% +/- 2.1% 39% +/- 4.1% 10% +/- 3.5% 0% +/- 0%

OPERS Target 2020 Fund 0% +/- 0% 32% +/- 2.7% 2% +/- 0% 0% +/- 0%

OPERS Target 2025 Fund 0% +/- 0% 14% +/- 2.4% 0% +/- 0% 4% +/- 1.5%







Underlying Funds

High Yield Bonds Large Cap Index Small Cap Index Non-U.S. Stock Index

OPERS Target Date Funds Target Range Target Range Target Range Target Range

OPERS Target Payout Fund 0% +/- 0% 10% +/- 1.3% 5% +/- 1.7% 15% +/- 2.2%

OPERS Target 2015 Fund 0% +/- 0% 13% +/- 1.4% 10% +/- 1.8% 23% +/- 2.4%

OPERS Target 2020 Fund 4% +/- 2.6% 17% +/- 1.7% 14% +/- 2.1% 31% +/- 2.6%









FUND STRATEGIES

45

Composition of Investment Portfolios

The Defined Contribution Fund is composed of investments that are directed by the members of the

Member-Directed and Combined Plans. As of September 30, 2009, participation in the Member-Directed

Plan approximated 9,700 members, while participation in the Combined Plan approximated 7,300

members. Over the last 12 months, most new members (81%) have defaulted to the Traditional Pension

Plan. Of the new members who have actively selected a retirement plan, 78% have selected the Traditional

Pension Plan, 15% the Member-Directed Plan and 7% the Combined Plan.

Periodically, Staff compares the OPERS Defined Contribution Fund to market peers to stay abreast of best

practices and monitor industry trends. Current findings on marketplace trends include:

Periodically, Staff compares the OPERS Defined Contribution Fund to market peers to stay abreast of best

practices and monitor industry trends. Current findings on marketplace trends include:

Many plan sponsors continue to offer a large number of investment options (15 or more funds).

However, some plan sponsors are reducing the number of investment options to simplify the account

management process for participants.

Many plan sponsors offer a multi-tiered investment structure of balanced funds (lifestyle and/or target

date) and individual funds. The Target Date Funds provide a diversified investment option for

participants that is simple to use. Most sponsors still allow their participants to build their own portfolio

using the individual funds that the plan offers.

In 2002, Staff and external advisors recommended a Defined Contribution Fund investment structure that

includes a multi-tiered investment option line-up with asset allocation funds and core fund investment

options. As of October 1, 2008, Target Date Funds replaced the Pre-Mix Portfolios to offer an improved

solution to those who would rather not pick their own mix of individual OPERS Funds or actively manage

their allocation over time.


FUND STRATEGIES

46

The present investment structure is designed to satisfy the investment objective of the Defined Contribution

Fund, which is to offer an array of funds that provide participants the ability to construct a portfolio that:

Is diversified by asset class and investment style,

Spans the risk-return spectrum,

Outperforms appropriate benchmarks over time where active management is used, and

Avoids un-rewarded risk

The table below details the respective benchmark indices and peers for each of the OPERS Investment

Options.

OPERS Investment Options Benchmark Index Benchmark Peers

OPERS Stable Value Fund Custom Stable Value (1) Stable Value Universe

OPERS Bond Index Fund Barclays Aggregate Mercer Mutual Fund U.S. Fixed Index Universe

OPERS Bond Fund Barclays U.S. Universal Mercer Mutual Fund U.S. Fixed Core Universe

OPERS Stock Index Fund Russell 3000 Mercer Mutual Fund U.S. Equity Large Cap Index Universe

OPERS Large Cap Fund Russell 1000 Mercer Mutual Fund U.S. Equity Large Cap Universe

OPERS Small Cap Fund Russell 2000 Mercer Mutual Fund U.S. Equity Small Cap Universe

OPERS Non-U.S. Stock Index Fund MSCI ACWI x U.S. Mercer Mutual Fund International Equity Index Universe

OPERS Non-U.S. Stock Fund MSCI ACWI x U.S. Mercer Mutual Fund International Equity Universe

OPERS Target Payout Fund Custom Payout (2) Mercer Mutual Fund Lifecycle Income Universe

OPERS Target 2010 Fund Custom 2010 (2) Mercer Mutual Fund Lifecycle 2010 Universe








OPERS Target 2050 Fund Custom 2050 (2) Mercer Mutual Fund Lifecycle 2050+ Universe

OPERS Target 2055 Fund Custom 2055 (2) Mercer Mutual Fund Lifecycle 2050+ Universe

1) The Custom Stable Value Index is composed of the following weights: 5% Merrill Lynch 3-Month Treasury Bills, 45% Barclays’

1-5 Year Government/Corporate Bond, 35% Barclays’ Intermediate Government/Corporate and 15% Barclays’ Aggregate,

smoothed over three year periods.

2) The Target Date Custom Indexes are composed of benchmarks of the underlying OPERS Funds using the same target

allocations as the respective OPERS Target Date Fund target allocation.


FUND STRATEGIES

47

Expected Fees

The table below shows the expected asset management fees for each of the OPERS Investment Options in

the Defined Contribution Fund. The estimates of fees are based on a projection of average assets and

expected basis points of fees for 2010 including shifting to passive underlying funds, where appropriate, in

the OPERS Target Date Funds. While fees are extremely low relative to the industry, Staff will continue to

monitor the costs of the Defined Contribution Fund.

Estimate of External Management Fees in Dollars and Basis PointsTotal for 2010

OPERS Investment OptionsAverage Assets

($ millions)

Estimated AnnualFees

($ millions)

Estimated AnnualFees (bps)

OPERS Stable Value Fund $21.6 $0.05 23

OPERS Bond Index Fund 16.2 0.01 4

OPERS Bond Fund 8.6 0.02 20

OPERS Stock Index Fund 27.4 0.01 3

OPERS Large Cap Fund 19.9 0.01 5

OPERS Small Cap Fund 16.9 0.01 8

OPERS Non-U.S. Stock Index Fund 10.8 0.01 10

OPERS Non-U.S. Stock Fund 11.9 0.03 29

OPERS Target Payout Fund 1.2 0.00 10

OPERS Target 2010 Fund 5.4 0.00 9










Total $336.2 $0.33 10


FUND STRATEGIES

48

Since its inception, the OPERS Defined Contribution Fund has successfully maintained a low investment

cost structure. As of June 30, 2009 the investment cost of the Defined Contribution Fund was

approximately 18 basis points, while the universe weighted average investment cost stood at 83 basis

points. Both of these figures include only investment expense ratios.

*Average Institutional share class net expense ratio as defined by the respective Mercer Mutual Fund Universe, which

unlike the OPERS Funds, may include 12b-1 fees and other expenses. 12b-1 fees and other expenses are charged by

mutual funds to pay for marketing, distribution, education, legal, custodial, transfer agent and other administrative costs

and typically range from 0.15% to 0.35% of average annual assets.

Asset Class 6/30/09 AllocationOPERS Expense

RatiosAverage Net

Expense Ratio*

U.S. Large Cap Equity Index 8.00% 0.03% 0.29%

U.S. Large Cap Equity 5.80% 0.05% 0.91%

U.S. Small Cap Equity 4.90% 0.08% 1.08%

International Equity 6.60% 0.32% 1.07%

U.S. Fixed 5.00% 0.20% 0.64%

Stable Value 10.00% 0.23% 0.35%

Lifecycle 59.70% 0.19% 0.95%

Total 100.00%


FUND STRATEGIES

49

Return and Risk

Mercer Investment Consulting provided the asset class return expectations listed below, which are based

on their capital markets modeling assumptions. Those assumptions are based on forward looking total

returns, fundamental data and valuation levels. The investment Staff does not attempt to incur tactical risk

and rebalances the OPERS Investment Options quarterly if their allocations are outside their policy range.

The returns listed below are neither predictions of, nor guarantees for, future performance.

*Risk is defined in this table as the forward looking annualized standard deviation.

Asset Class and Target Date Fund Expected Return and Risk

Asset Classes Return Risk*

OPERS Stable Value Fund 4.3% 3.0%

OPERS Bond Index Fund 4.8% 5.5%

OPERS Bond Fund 4.8% 5.5%

OPERS Stock Index Fund 8.3% 18.6%

OPERS Large Cap Fund 8.2% 17.9%

OPERS Small Cap Fund 8.4% 21.7%

OPERS Non-U.S. Stock Index Fund 8.2% 18.6%

OPERS Non-U.S. Stock Fund 8.2% 18.6%

Target Date Funds

OPERS Target Payout Fund 6.1% NA

OPERS Target 2010 Fund 6.4% NA











FUND STRATEGIES

50


Active returns are estimated by applying the performance objectives of the underlying funds to the target

asset allocation of each Target Date Fund as listed previously in the Defined Contribution Fund’s Asset

Allocation section. The performance objectives and tracking errors listed below are neither predictions of,

nor guarantees for, future performance. The performance objectives of the OPERS Investment Options are

defined by the member-directed fund policy, which provides a framework for the investment Staff to manage

the funds. Staff is currently updating the Defined Contribution Fund and Member-Directed Fund policies for

2010, which may result in changes to performance objectives and tracking error.

Expected Active Return and Risk

Target Date Funds

PerformanceObjective

(bps)Tracking Error

(bps) Information Ratio

OPERS Target Payout Fund 3 25 0.10

OPERS Target 2010 Fund 2 28 0.07











Average AssetsUnder

Management ($ millions) Benchmark

PerformanceObjectives

(bps)

TargetTracking

Error (bps)

TargetInformation

Ratio

OPERS Stable Value Fund $25.5 Custom SV* 10 NA NA

OPERS Bond Index Fund $46.3 Barclays Aggregate 0 25 0.00

OPERS Bond Fund $67.8 Barclays U.S. Universal 30 70 0.43

OPERS Stock Index Fund $56.8 Russell 3000 0 15 0.00

OPERS Large Cap Fund $46.3 Russell 1000 0 25 0.00

OPERS Small Cap Fund $17.3 Russell 2000 0 75 0.00

OPERS Non-U.S. Stock Index Fund $46.3 MSCI ACWI x U.S. 0 75 0.00

OPERS Non-U.S. Stock Fund $87.2 MSCI ACWI x U.S. 50 250 0.20

*Custom SV benchmark is previously defined in the Defined Contribution Composition of Investment Portfolio section.


Asset ClassStrategies


ASSET CLASS STRATEGIES

51

Tactical Outlook

This tactical outlook provides the background and context for the asset class strategies and for

consideration of biases between the asset classes for both the Defined Benefit and Health Care Funds.

Following are overviews of the two components of the tactical outlook: the economic outlook and the

investment outlook. The economic outlook was provided by the Board’s general investment advisor, Mercer

Investment Consulting, in November of 2009. The investment outlook, provided by OPERS’ Investment

Staff, is summarized by asset class.

Economic Outlook

Global economic growth is expected to be weak in the developed world, but gradually improving well

into 2010. This recession was the worst downturn since the Great Depression. However, at this point,

it appears to be ending. The emerging markets should have higher growth than the developed markets

as is normally the case.

We expect a recovery of growth to 2.2% in the U.S. in 2010. Our long run assumption for economic

growth in the U.S. is 3.1%.

Inflation should remain below average until mid-2010, when inflationary pressures are most likely to

emerge. We expect inflation to be 2.0% in the U.S. in 2010. However, our long run projections have

inflation rising above 3.0% in 2011 before gradually settling down into a range of 2.5% to 3.0%. Our

long run average for inflation is 2.7% to 2.8%.

Although the Fed promises to be vigilant about inflation, we believe it will delay tightening monetary

policy, resulting in an uptick in inflation in 2011.

The U.S. unemployment rate should rise to about 10% at the beginning of 2010 and then gradually fall

throughout the year. We expect the unemployment rate to fall to 9.2% by the end of 2010. Employment

is always a lagging indicator for the economy. It is expected to lag more than usual in this recovery.

The U.S. dollar is competitively priced and should be a positive factor for growth, as it encourages

agriculture and manufacturing exports. Due to lax monetary policy and large budget deficits, we expect

the dollar to be pressured further downward in 2010.

Mercer expects Treasury rates to remain muted in the next few months, but the middle of next year is

probably a key inflection point for the economy. Corporate spreads have tightened to the point that they

are consistent with below average growth.



52

Investment Outlook

Information gathered from a variety of sources was used to determine the investment outlook for 2010.

Information considered includes Mercer’s outlook, research from investment banks, discussions with and

research by, external investment managers, feedback from asset class advisors, discussions with peers

and industry experts and academic and informational periodicals.

U.S. Equity Outlook

The U.S. equity market has recovered about halfway from its nadir, reached on March 9, 2009. The

initial primary driver for the stock market recovery was a restoration of some confidence via inflows to

the International Monetary Fund, thereby securing eastern Europe and its potential impact on many

large European banks, and the U.S. Government’s implicit statement that none of the original grouping

of stress-tested banks would be allowed to fail. These two actions coming within a short period of each

other restored enough confidence to stem the onslaught of selling that was only picking up steam as

each day brought further uncertainty.

Since those difficult days in early March, the Standard & Poor’s 500 Index (S&P 500) of large U.S.

companies has mounted an impressive 60% return at the time of this writing. Second quarter 2009

earnings showed the significant extent of cost-reduction and restructuring achieved across corporate

America. Companies were not only surviving, but they were also remaining competitive. With easy

gross domestic product (GDP) comparisons for the next several calendar quarters, interest rates

pegged at low levels due to the need for significant deleveraging, and the expected fruits of operating

leverage benefits from revenue growth at recession’s end, the S&P 500 should continue to grind higher

for a period of time. The markets have also benefitted from reduced net short-selling and even the

return of capital that had fled the markets since their peak in October 2007.

As with all post World War II cycles, achieving higher levels of GDP normally had the effect of taking up

slack in the labor markets, leading to higher wages, more national employment and hence more

confidence to take on more debt. This cycle is expected to be different. Debt growth is highly unlikely

as deleveraging, once begun, normally takes years to accomplish. The expected drag on growth from

debt repayments is likely to keep companies cautious in their hiring and inventory-building. As a result,

it will be difficult for this cycle to take on the self-reinforcing characteristics of prior cycles. Our return

expectations for 2010 and beyond are highly correlated to our view of GDP growth. We are looking for

the S&P 500 to have a nice run up to the 1250-ish range in the first half of the year. If GDP growth

continues, and even expands, we look for modest gains from there, perhaps into the 1350s range. On

the other hand, if GDP growth stalls in first half of next year, we would look for a retracement back to the

1100-1000 levels (where we were in October 2009).



53

Non-U.S. Equity Outlook

The global financial system is awash with excess savings and private sector credit demand is still weak.

As a result, governments around the world have increased their borrowing and spending efforts to

prevent price levels from falling and stimulate demand. This has produced a synchronized global

recovery, which should help global equities to advance. However, business profitability is expected to

be constrained due to the deleveraging of the U.S. consumer and a steadily rising savings rate.

Emerging markets remain fundamentally attractive with long-term of growth rates in excess of those

available in developed markets.

U.S. dollar weakness, triggered by the prospect of sustained low interest rates and by increased U.S.

Government debt issuance, is a concern longer-term.

Global Bonds Outlook

The majority of fiscal stimulus in response to the financial crisis is expected to be delivered in 2010,

providing support for economic growth in the near term. Uncertainty surrounding the sustainability of

economic growth without government stimulus will continue to weigh on the markets during the first half

of 2010.

With a benign inflationary environment for 2010, the Federal Reserve will likely maintain a low level of

interest rates. However, it is possible to foresee initial monetary tightening in the second half of 2010,

given an economic recovery.

Demand for investment grade credit bonds will remain high throughout 2010, with reduced supply, the

lack of a viable credit default swap market, declining default rates, and improving corporate profitability

putting a ceiling on how high spreads can widen.

Securitized assets will experience higher volatility than in 2009 due to the uncertainty surrounding the

government’s continued financial support, and the eventual timing and magnitude of its withdrawal of

crisis support from these markets.

The Treasury yield curve is biased flatter. In the near term, low inflation and anchored short rates could

provide the impetus for lower long-term interest rates and therefore, a bullish flattening of the yield

curve. Later in the year, a steady flow of economic data confirming a recovery could result in short

rates rising higher than long rates, subsequently leading to a bearish flattening of the yield curve.



54

Private Equity Outlook

Expected return for private equity is in the range of 4% to 12% with a target return of 8%.

Corporate finance investments (sometimes called “Buyout”) should experience a continued slow pace of

new investment activity as debt is still relatively limited and expensive. There are signs of improvement

in the lending market, which should provide more attractive financing packages for new purchases, but

a return to the level of investment activity experienced during 2005-2007 is not expected. Private Equity

managers should develop alternative methods to invest in these markets. A few examples of expected

investment strategies in 2010 are providing support-capital for balance sheet restructuring transactions,

growth-capital to allow companies to take market share from weaker competitors, spin-outs of “orphan”

business lines from larger conglomerates that need to raise cash, and the control of distressed

companies through the conversion of debt-to-equity, post restructuring.

The success of venture capital investments during 2010 will be subject to a recovery in the IPO market

(initial public offering) as well as increased interest from larger corporations for strategic acquisitions,

particularly in health care and information technology. Venture capital has experienced a decade of

stagnant growth and limited success, yet the recent success of venture backed IPOs may bring new life

to this market.

Limited partners (LPs) like OPERS have not experienced the level of capital call activity expected as a

result of the small amount of new investment activity. The bear market also limited distributions of

capital back to LPs. Thus, there has been little change in invested levels.

Many limited partners have a large amount of “unfunded commitments” that they may not be able to

honor once capital calls resume in earnest. Secondary sales of limited partner interests should be

robust during 2010 as limited partners sell some interests to raise cash or reduce this unfunded

commitment liability they have.

Real Estate Outlook

Staff believes that the recession of 2007-2009 will provide OPERS with attractive commercial real

estate investment opportunities in 2010, and perhaps beyond.

There is currently a limited supply of new debt financing for commercial real estate, but an estimated $1

trillion of commercial real estate debt is scheduled to mature over the next three years. This is a

dichotomy that will need to be resolved, hopefully without crisis.

Commercial real estate property fundamentals, occupancy and rental rates, continue to deteriorate.

Staff believes that the combination of limited debt financing and anticipated continued decline in

property cash flows will force owners to sell assets at discounted prices, and provide opportunities for

patient, long-term investors such as OPERS.



55

Public EquityThe Public Equity asset class is comprised primarily of U.S. Equity and Non-U.S. Equity-like securities. The

following table summarizes the exposure of U.S. Equity and Non-U.S. Equity within the Defined Benefit

Fund.

The following table summarizes the exposure of U.S. Equity and Non-U.S. Equity within the Health Care

Fund.

The following sections provide detailed explanations of the U.S. Equity and Non-U.S. Equity asset class

strategies, composition and risk and return expectations.

Defined Benefit Public EquityExpected Performance and Tracking Error

AverageAssets UnderManagement ($ millions)

% of Total

DefinedBenefit Benchmark


(net of fees)(bps)

Target Tracking

Error*(bps)

TargetInformation

Ratio

EstimatedAnnual Fee($ millions)

EstimatedAnnual Fee

(bps)

U.S. Equity $22,904.5 65.8% Russell 3000 20 32 0.68 $11.1 4.9

Non-U.S. Equity $11,994.2 34.2% MSCI ACWI-xU.S. 75 115 0.66 $30.5 25.4

Health Care Public EquityExpected Performance and Tracking Error


% of Total

Health Care Benchmark


(net of fees)(bps)

Target Tracking

Error*(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

U.S. Equity $3,205.2 53.3% Russell 3000 20 32 0.68 $1.6 4.9

Non-U.S. Equity $2,810.6 46.7% MSCI ACWI-xU.S. 75 115 0.66 $7.2 25.4

*The tracking error ranges for U.S. Equity and Non-U.S. Equity are 20 - 100 bps and 80 - 300 bps, respectively.

*The tracking error ranges for U.S. Equity and Non-U.S. Equity are 20 - 100 bps and 80 - 300 bps, respectively.



56

U.S. Equity

Strategy

The objective for the U.S. Equity strategy is to obtain broad-based exposure to the U.S. Equity market and

to outperform the benchmark while managing return volatility relative to the benchmark. The public equity

policy provides a strategy framework that allows flexibility for moving assets between portfolios and for

managing allocations to managers with similar risk levels in the same category. This approach also

specifically acknowledges that different strategies entail different levels of risk.

While the U.S. Equity market is considered an efficient asset class, the strategy facilitates building portfolios

of managers with a high probability of achieving return targets rather than focusing only on risk control. It

also allows for an opportunistic approach for identifying managers with high alpha potential within the active

management category.

Portfolio Allocation

The U.S. Equity asset class is comprised of three categories of managers: index, enhanced index and

active. The allocation to the index category is a key risk control component of the asset class, although it is

expected be reduced somewhat, in an effort to garner more excess return. Indexing, otherwise known as

passive management, is a portfolio management approach for gaining index or beta exposure to the asset

class and exhibits very low tracking error of 0 to 50 basis points (a basis point is a hundredth of a percent).

Tracking error is a measure of a portfolio’s variability of returns relative to that of its benchmark (i.e., how

much more volatile is the portfolio than the index).

”Enhanced” index managers employ a risk-controlled approach with the portfolios exhibiting low to

moderate levels of tracking error, principally by holding as many as half or more of all stocks in the index.

The tracking error of an enhanced index strategy is generally expected to be in the range of 50 basis points

(0.50%) to 250 basis points (2.50%). The enhanced index category is comprised of managers that have

diversified sources of alpha from three general strategic approaches. A risk-controlled, quantitative

approach is employed by three managers (Goldman, Barclays and Piedmont). PIMCO is a synthetic

enhanced index portfolio, which holds equity index futures to obtain equity market exposure while investing

the remaining cash in short-term, fixed income securities. The internal enhanced portfolio is a low-to-

medium risk fundamental analysis strategy managed by U.S. Equity Internal Management Staff.

The tracking error range for active managers is expected to be 250 basis points (2.50%) to 800 basis points

(8.00%) or more. The active portion of our U.S. Equity allocation is currently spread among five managers,

with two managers being funded in 2007 for the manager of minority manager program. Leading Edge and

Progress are fund of funds programs each comprised of minority managers and were initially funded with

allocations of $75 million and $50 million, respectively. Leading Edge and Progress have manager

selection and allocation authority and currently use twelve and seven managers in their line-ups,

respectively.



57

Performance Objectives and Risk Control

The U.S. Equity asset class benchmark is the Russell 3000 Index, which is a broad-based index of large

and small companies, substantially comprising in dollar value the investable U.S. Equity universe. OPERS’

allocations among the indexed, enhanced index and active management categories are managed to

optimize the risk and return profile of the asset class portfolio. The composition of the asset class will

continue to be assessed to determine the appropriate managers and the optimal allocations to achieve the

performance objective while working within an allotted risk budget.

The outperformance objective or alpha expectation for 2010 for the aggregate U.S. Equity asset class

composite is 20 basis points, as shown in the accompanying table. The allocations among the portfolios,

which have varying degrees of expected alpha, determine the aggregate alpha expectation. The sources of

outperformance are from the enhanced index and active management categories. The expected alphas for

these managers fall in the 47 to 178 basis point range. The alpha expectations are based on the

confidence level for each manager as well as the outlook for the specific strategy that each employs.

The asset class tracking error is determined by a risk budgeting process and an analysis of historical and

expected manager tracking errors versus their respective index and the overall asset class benchmark.

Tracking error expectations are established for each portfolio and each category of portfolios (index,

enhanced and active) resulting in an overall portfolio that has a risk budget that remains below the U.S.

Equity policy limit of 70 basis points and is targeted at 32 basis points.

The benefit of diversification among managers, manager strategies and manager benchmarks results in a

lower tracking error estimate than would be computed by a simple weighted average of the individual

portfolio tracking errors. Therefore, despite tracking error estimates for a manager of up to 800 basis

points, the asset class tracking error target is quite low at 32 basis points. The tracking errors of the asset

class, categories and individual portfolios are monitored on a regular basis to assess changes in manager

and portfolio behavior as well as to compare with the targets described in this Annual Investment Plan.

The Internal Russell 2000 and Internal Russell 1000 portfolios are index-oriented and employ the use of

derivatives such as futures. They are used in tandem for tactical asset allocation at the total fund level for

managing U.S. Equity exposure, as well as at the asset class level for managing small capitalization and

large capitalization exposure. The accounts are also used for conducting transition of funds between

managers or the transfer of assets into or out of the asset class. The use of derivatives and the expertise of

internal Fund Management Staff and the equity trading department allow Staff to often transition U.S. Equity

assets in-house in a very cost effective and operationally efficient manner.

The portfolio composition and strategic allocation are managed to achieve an attractive risk-adjusted return.

A measure of the risk-return efficiency of a portfolio is the information ratio. The aggregate portfolio

outperformance and tracking error are used to calculate the information ratio. The calculation is expected

alpha divided by tracking error. The 2010 U.S. Equity portfolio is expected to have an information ratio of

0.68. The following schedule shows this risk-adjusted performance objective, the tracking error target for

each portfolio and the corresponding active return expectations.



58

The allocations of the Defined Benefit Fund starting in 2010 will require transitioning assets out of the U.S.

Equity asset class while continuing to achieve the outperformance objective within the stated risk parameters.

Portfolio Composition

The table below is a summary of the allocations for the U.S. Equity portfolio, showing the internal and

external management and the active (including enhanced index) and passive asset allocations.

U.S. EquityExpected Performance and Tracking Error


% of Total U.S.

Equity Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio

EstimatedAnnual

Fee($ millions)

EstimatedAnnual

Fee(bps)

Index

Internal R3000 $17,101.9 65.5% Russell 3000 4 9 0.40 $0.2 0.1

Internal R2000 522.2 2.0% Russell 2000 0 15 0.00 0.1 2.0

Internal R1000 156.7 0.6% Russell 1000 0 35 0.00 0.1 3.5

Total Index 17,780.7 68.1% Russell 3000 4 10 0.36 0.4 0.2

Enhanced Index

Internal Enhanced 3,942.6 15.1% Russell 1000 47 125 0.38 1.8 4.5

BGI 1,671.0 6.4% Russell 1000 44 100 0.44 2.7 16.4

Piedmont 130.5 0.5% S&P 500 57 150 0.38 0.2 17.6

Goldman Sachs 1,227.2 4.7% S&P 500 74 150 0.49 1.9 15.8

PIMCO 652.7 2.5% S&P 500 50 125 0.40 1.6 25.0

Total Enhanced Index 7,650.2 29.3% 51 90 0.57 8.3 10.9

Active

Leading Edge MOMM 130.5 0.5% Russell 3000 41 250 0.16 0.8 58.4

Progress MOMM 26.1 0.1% Russell 3000 20 200 0.10 0.2 60.0

Invesco 235.0 0.9% Russell 2000 72 300 0.24 1.1 47.2

Pyramis 313.3 1.2% Russell 2000 178 800 0.22 1.9 61.6

Total Active 678.9 2.6% 116 450 0.26 4.0 58.3

Total U.S. Equity $26,109.7 100.0% Russell 3000 20 32 0.68 $12.7 4.9

Estimate of Internal/External and Active/Passive Composition

Est. Mid-Year 2009 Est. Mid-Year 2010

Active Passive Total Active Passive Total

Internal 19.2% 65.5% 84.7% 15.1% 68.1% 83.2%

External 15.3% 0.0% 15.3% 16.8% 0.0% 16.8%

Total 34.5% 65.5% 100.0% 31.9% 68.1% 100.0%



59

Non-U.S. Equity

Strategy

OPERS’ seeks to obtain exposure to Non-U.S. Equities across both developed and developing markets to

diversify plan assets and enhance return. To achieve this, the portfolio invests in both passive and active

management strategies, with a bias towards active strategies. The active and enhanced allocations are

approximately 80% of the portfolio and take advantage of the historical ability of active managers to

generate excess returns in this asset class. The passive allocation is approximately 20% and produces risk

controlled, inexpensive, broad market exposure.

Internal management of the asset class through the use of derivatives is authorized. Currently, the program

is 100% externally managed. External managers are selected in accordance with the OPERS External

Manager Search Policy for their expertise, risk management skill and ability to add excess returns above

the benchmark return. The asset class benchmark is the Morgan Stanley Capital International All Country

World excluding the United States Standard Index (MSCI ACWIxU.S.), unhedged, and net of dividends.

Portfolio Allocation

While it is Staff’s responsibility to monitor and manage the risk that the sum total of individual manager

performances exceeds the performance of the asset class benchmark, individual managers are sometimes

assigned a benchmark narrower than the one for the asset class. The Non-U.S. Equities portfolio is

composed of 14 different externally managed portfolios benchmarked to four distinct indexes: the MSCI

ACWIxU.S., the MSCl Europe, Australasia and Far East Standard Index (MSCI EAFE), the MSCI Emerging

Market Index (MSCI EM) and the MSCl World excluding U.S. Small Cap Index (MSCIWxU.S.Small Cap).

Most managers have the same benchmark of the asset class.

Active managers benchmarked to the MSCI EAFE Index invest almost exclusively in international

developed markets. Managers within the MSCI ACWIxU.S. category are permitted to invest in both

developed and emerging markets up to a prescribed guideline limit. The portfolio targets a high allocation

to these types of managers. There is a strategic allocation to dedicated emerging market managers that

targets a much smaller portion of total portfolio value. Finally, the portfolio has a small target allocation to

dedicated international small cap managers.

As of September 30, 2009, the Non-U.S. Equity asset class was approximately $14 billion. The portfolio

tracking error was under 130 basis points (1.30%) and the portfolio was overweight small cap, active versus

passive investment strategies and emerging markets versus its benchmark.



60


The benchmark for the total Non-U.S. Equity asset class is the MSCI ACWIxU.S. Index and the portfolio is

expected to outperform this benchmark by at least 75 basis points (0.75%) over a three-to-five year market

cycle, net of fees. Investment Staff, using risk budgeting and other techniques, determines the asset class

tracking error, or active risk. The tracking error is projected to be 115 basis points (1.15%) in 2010 given

the current portfolio positioning and market volatility. As a result, an information ratio of 0.66 is expected,

which is consistent with other asset classes.

The following table illustrates each existing portfolio, expected performance objectives, and forecasted

contribution to the total asset class returns.

Non-U.S. EquityExpected Performance and Tracking Error


% of Total

PublicEquity Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

Index

BGI Index $2,590.8 17.5% ACWIxU.S. 13 25 0.52 0.8 3.0

Total Index 2,590.8 17.5% ACWIxU.S. 13 25 0.52 0.8 3.0

Active ACWIxU.S./EAFE

Acadian Core 695.8 4.7% ACWIxU.S. 144 400 0.36 2.2 31.5

Alliance Bernstein 6.9% ACWIxU.S. 45 350 0.13 3.5 34.2

Baring 1,228.8 8.3% ACWIxU.S. 73 200 0.37 1.7 14.2

BGI Enhanced 3,405.1 23.0% ACWIxU.S. 52 100 0.52 4.7 13.9

Brandes 1,273.2 8.6% ACWIxU.S. 167 700 0.24 4.7 37.1

JP Morgan 1,065.9 7.2% ACWIxU.S. 50 300 0.17 4.0 37.9

LSV 547.8 3.7% EAFE 84 350 0.24 2.3 41.8

TT International 651.4 4.4% ACWIxU.S. 62 450 0.14 2.6 39.2

Walter Scott 4.3% EAFE 137 800 0.17 2.5 39.2

Total Active ACWIxU.S./EAFE 10,526.2 71.1% 81 150 0.54 28.3 26.9

Active Emerging Mkts

Acadian Emerging 370.1 2.5% Emerging 127 500 0.25 1.9 50.6

Lazard 384.9 2.6% Emerging 170 600 0.28 1.5 40.0

T Rowe Price 444.1 3.0% Emerging 107 500 0.21 3.3 74.4

Total Active Emerging Mkts 1,184.4 8.0% Emerging 135 350 0.39 6.7 56.7

Active Small Cap

Acadian Small Cap 503.4 3.4% Small Cap 138 500 0.28 1.9 38.0

Total Active Small Cap 503.4 3.4% Small Cap 138 500 0.28 1.9 38.0

Total Non U.S. Equity $14,804.8 100.0% ACWIxU.S. 75 115 0.66 $37.7 25.4



61


The structure and risk profile of the program has remained virtually the same as that outlined in the 2009

Annual Investment Plan. The increased allocation will prompt Staff to consider adding managers and

further exploring the passive management of Non-U.S. Equities internally through the use of derivatives.




Internal 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

External 79.7% 20.3% 100.0% 82.5% 17.5% 100.0%

Total 79.7% 20.3% 100.0% 82.5% 17.5% 100.0%



62

Public Fixed Income

Strategy

The Global Bonds asset class is composed of one composite, containing multiple underlying portfolios, and

three dedicated portfolios, each with a specific purpose:

Global Bonds Universal composite: Provides broad exposure to fixed income assets through multiple

underlying portfolios,

Long Duration portfolio (managed internally): Dedicated elements of asset-liability matching against

long-term liabilities,

Treasury Inflation Protected Securities (TIPS) portfolio (managed internally): Dedicated hedge against

inflation in health care costs; and

Short Duration portfolio (managed internally): Dedicated liquidity for the Health Care Fund.

The Global Bonds asset class uses both internal and external portfolio management. The majority of

assets are internally managed. Internally managed portfolios employ fundamental, active, benchmark-

focused strategies covering the broad U.S. Fixed Income market. External managers are used

predominately for the high yield and emerging market debt sectors.

Global Bonds Universal Composite—Defined Benefit and Health Care Funds

The Global Bonds Universal Composite is managed against the Barclays Universal Index and includes

Core, High Yield and Emerging Market Debt portfolios. Both the Defined Benefit and Health Care Funds

have assets allocated to the Universal Composite.

Defined Benefit Public Fixed IncomeExpected Performance and Tracking Error


% of Total

DefinedBenefit Benchmark


(net of fees)(bps)

Target Tracking

Error*(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

Core Fixed $7,106.8 56.2% Barclays Agg 23 75 0.31 $0.8 1.1

Long Bonds 5,492.2 39.3% Barclays Long G/C 15 100 0.15 0.4 0.7

High Yield 808.7 3.3% Barclays HY 82 325 0.25 3.5 43.4

Liquidity $543.7 1.2% 3-Month T-Bill 0 30 0.00 $0.3 5.4

*The tracking error ranges for Defined Benefit Public Fixed Income is 0 - 200 bps.



63

The following sections provide details about each individual fixed income investment strategy.

Core Fixed

Internal Staff manages the core assets, with a small portfolio exception. Core portfolios seek to outperform

the benchmark using a diversified set of alpha sources but primarily using sector and security selection.

The Internal Core portfolio emphasizes diversification, liquidity and low volatility versus the benchmark.

The Internal Core portfolio has an excess return target of 23 basis points and a tracking error of 75 bps.

There is one external core bond manager is the AFL-CIO Housing Investment Trust. This manager seeks

to generate a competitive risk-adjusted return by investing primarily in multi-family and single-family

mortgage backed securities insured or guaranteed by the U.S. Government. The other primary objective is

to encourage the construction of affordable housing and the employment of union members. The

performance objective is to generate a 40 basis point excess return over the Barclays Aggregate Index.

Health Care Public Fixed IncomeExpected Performance and Tracking Error

AverageAssetsUnder

Management ($ millions)

% of Total

HealthCare Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio


EstimatedAnnual

Fee(bps)

Core Fixed $1,359.2 27.8% Barclays Agg 23 75 0.31 $0.2 1.1

TIPS 2,342.3 48.0% Barclays TIPS 15 50 0.30 0.1 0.5

Short Duration 574.6 20.6% Barclays Short G/C 25 75 0.33 0.2 3.9

High Yield 144.6 1.8% Barclays HY 82 325 0.25 0.6 43.4

Emerging Market Debt 386.8 1.8% Barclays EMD 156 385 0.41 1.8 45.6

Liquidity $74.1 0.0% 3-Month T-Bill 0 30 0.00 $0.0 5.4

*The tracking error ranges for Health Care Public Fixed Income is 0 - 200 bps.

Core FixedExpected Performance and Tracking Error


% of Total

Core Fixed Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

Internal Core $ 8,356.7 98.7% Barclays Agg 23 75 0.31 $0.6 0.7

AFL-CIO 109.3 1.3% Barclays Agg 40 75 0.53 0.4 35.0

Total $8,466.0 100.0% Barclays Agg 23 75 0.31 $1.0 1.1



64

High-Yield Debt

High-yield securities represent approximately 6% of the Lehman Brothers Universal Index. The

outperformance comes from security selection, which is supported by labor-intensive credit research.

High-yield securities are bonds that are rated below investment-grade at the time of purchase. These bonds

have a higher risk of default, but typically pay sufficiently higher yields than investment-grade bonds in order

compensate for losses and still make them attractive to investors. OPERS high yield exposure is currently

100% externally managed by three external managers: Fort Washington, Goldman Sachs Asset

Management and Post Advisory. All three managers seek to outperform their performance benchmark by

engaging in fundamental credit research. To take advantage of opportunities in this sector, portfolio guidelines

are formulated to give these managers broad discretion to invest throughout the high-yield universe.

The increased allocation to high yield will result in the addition of external managers in 2010 and further

consideration of ways to internally manage some of this allocation, such as though derivatives exposure.

High YieldExpected Performance and Tracking Error


% of Total High Yield Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

Fort Washington $253.0 26.5% Barclays HY 95 400 0.24 $0.6 25.0

Goldman Sachs 460.3 48.3% Barclays HY 40 300 0.13 2.3 50.0

Post 239.9 25.2% Barclays HY 150 500 0.30 1.2 50.0

Total $953.3 100.0% Barclays HY 82 325 0.25 $4.1 43.4



65

Emerging Market Debt

Emerging market debt is a term used to encompass bonds issued by developing countries. Emerging

market debt tends to have a lower credit rating (and thus a higher yield) than other sovereign debt because

of increased economic, political, and currency risks. To gain exposure to this type of debt, OPERS employs

two external managers – Stone Harbor and Capital Guardian – who primarily add value through country

selection. The role of emerging markets debt is evolving under the new allocations for the Defined Benefit

and Health Care Funds, and Staff will be proposing policy adjustments to the Board for 2010 and possibly

adding more managers.

Emerging Market DebtExpected Performance and Tracking Error


TotalEmerging

MarketDebt Benchmark


(net of fees)(bps)

Target Tracking

Error(bps)

TargetInformation

Ratio


EstimatedAnnual Fee

(bps)

Capital Guardian $ 218.0 56.4% Barclays EM 204 500 0.41 $1.0 46.0

Stone Harbor 168.8 43.6% Barclays EM 95 350 0.27 0.8 45.0

Total $386.8 100.0% Barclays EM 156 385 0.41 $1.8 45.6



66

Dedicated Portfolios

Long Duration – Defined Benefit Fund

The internally managed Long Duration portfolio was implemented in 2007 as a result of the review of the

Defined Benefit Fund asset allocation completed in 2006. The review recommended that 40% of Defined

Benefit Fund’s global bond assets be in the Long Duration portfolio, with the remaining 60% in the Universal

Composite. The latest allocation reduces the proportion slightly, to 36%. The portfolio is designed to meet

or exceed the return of the Barclays Long Government/Credit Index with a low level of tracking error. The

primary sources of outperformance for the fund are sector rotation and security selection.

Treasury Inflation Protected Securities (TIPS)

The internally managed TIPS portfolio started in 2005 as a result of the segregation of the Defined Benefit

and Health Care Funds. The portfolio is designed to meet the return of the Barclays TIPS Index with a low

level of tracking error.

Short Duration

The Short Duration portfolio was started in 2005 as a result of the segregation of the Defined Benefit and

Health Care Funds. The portfolio is structured to meet or exceed the return of the Barclays 1-3 Year

Government Bond Index with a low level of tracking error. The primary sources of outperformance are

sector rotation and security selection.

Liquidity Allocation

The new Defined Benefit Fund allocation adds a liquidity pool. Policies are being developed and will be

proposed to the Board for 2010.



67


The Defined Benefit Fund and the Health Care Fund recently adopted a new policy mix for fixed income

and will be transitioning towards the new target allocations in 2010.

In the past, OPERS has used a single broad benchmark for the fixed income asset class. In general, broad

benchmarks are preferable when allocating to asset classes because they capture the full measure of the

securities available for investment. Broad benchmarks also allow the greatest flexibility to add value during

implementation while investing. However, and due in no small measure to the credit crisis of 2007-08, best

practices in fixed income allocations increasingly recognize that using benchmarks which simply reflect the

fixed income universe “as is” are sub-optimal. Fixed income is no longer seen as one monolithic asset

class, driven solely or predominantly by changes in interest rates.

Sub-optimization occurs because of the capitalization weighting of indexes. The more money an entity

borrows, the less worthy its credit is. Yet, the more money an entity borrows, the larger a portion of its

benchmark it becomes. Then, in designing fixed income portfolios which manage tracking error versus

benchmarks, the larger an entity is in the index, the more OPERS is induced to buy. An optimal portfolio

limits the amount invested in the riskiest assets rather than adding to them just because tracking error

discipline induces it. This is what we mean when we say capitalization weighting alone sub-optimizes.

This same pattern of “chasing the issuance of bonds” applies to whole fixed income sectors like Treasuries,

Agencies and Corporates. So, for example, the more “Subprime” debt that is issued, the more of it one

needs to buy in order to minimize tracking error to such a benchmark.

Therefore, in order to identify and invest in the fixed income characteristics (interest rates, credit, highly

liquid, inflation-linked, etc.) which improve portfolio efficiency, OPERS is unbundling from the broad fixed

income benchmark and allocating to narrower benchmarks. These are the same benchmarks that are

components of the broad fixed income benchmark; however, our allocation weights them differently.

So, while OPERS may still allocate to “Subprime,” the allocation target cannot grow without a conscious

decision to change it. Before, OPERS’ allocation target would grow simply if the issuance of “Subprime”

grew.

Beginning with the 2010 allocation, there are no overall benchmarks for each fund, but the Board’s

individual bond allocations will each have their own sector benchmark, risk controls and performance

objectives. In the Defined Benefit Fund these include Core Fixed, Long Bonds, High Yield and a Liquidity

Reserve. In the Health Care Fund these include Core Fixed, TIPS, High Yield, Emerging Market Debt and

a Liquidity Reserve.



68


The following is a summary of the allocation of the Global Bonds portfolio between internal and external

managers:




Internal 90.5% 0.7% 91.2% 92.3% 0.0% 92.3%

External 8.8% 0.0% 8.8% 7.7% 0.0% 7.7%

Total 99.3% 0.7% 100.0% 100.0% 0.0% 100.0%



69

Securities Lending

The Securities Lending program uses a combination of lending agents to optimize the incremental return

from this investment strategy. This move towards the diversification of agents coincides with the increase in

lending revenue for OPERS in recent years. OPERS seeks agents who provide competitive fee splits,

while providing adequate risk controls and segment expertise in the asset class being loaned.

There is a bias toward lending assets in an auction environment so that borrowers are providing maximum

return in a competitive environment on a regular basis.

The Securities Lending program currently has the following structure:

Cash Management

The cash portfolios exhibit a low-to-moderate risk profile that results in principal preservation, while

exceeding the performance of the respective benchmarks. The benchmark of the OPERS Short Term

Investment Funds (STIF) is the 91-day Treasury bill. The benchmark for the Securities Lending STIF is the

Fed Funds Open Rate. Each portfolio is run separately, with Staff targeting assets that are most likely to

generate performance above the respective portfolio benchmarks.

Securities Lending Structure

Total Assets($ billions)

AverageLendable

($ billions) Lending Agent Auction

U.S. Equity $22.4 $20.4 eSecLending x

Global Bonds 16.1

Corp Bonds 4.8 eSecLending x

Emerging Market Debt 1.6 State Street

Treasuries 5.6 State Street

Agencies 0.8 State Street

FNMA 1.0 eSecLending x

FHLMC/GNMA 0.8 Key Bank

Non U.S. Equity 11.8

Commingled Assets 4.8 BGI

Separate Account Assets $4.2 State Street



70

Alternatives

The Alternatives asset class is composed of private equity, real estate, hedge funds, infrastructure and

commodities investment strategies. The Defined Benefit and Health Care Funds invest differently in the

Alternatives asset class to meet their unique investment objectives.

The following table summarizes the alternative investment strategies utilized within the Defined Benefit

Fund.

The following table summarizes the alternative investment strategies utilized within the Health Care Fund.

The following sections provide details about each Alternatives investment strategy.

Defined Benefit AlternativesExpected Performance and Tracking Error


% of Total

DefinedBenefit

Alternatives Benchmark


(net of fees)(bps)

Target Tracking

Error*(bps)

TargetInformation

Ratio


EstimatedAnnual

Fee(bps)

Private Equity $2,777.1 36.7% Russell 3000 + 3% 100 750 0.13 $74.0 266.3

Real Estate 5,210.0 53.0% NCREIF 0 600 0.00 56.5 108.4

Opportunistic/Hedge Funds 754.3 8.3% Custom** 0 300 0.00 5.6 74.8

Infrastructure $176.7 1.9% CPI + 5% 0 300 0.00 $2.9 166.1

*The tracking error ranges for Defined Benefit Alternatives is 0 - 600 bps.**The Defined Benefit Opportunistic/Hedge Funds custom benchmark is a blend of LIBOR + 4% and 10%.

Health Care AlternativesExpected Performance and Tracking Error


% of Total

Health CareAlternatives Benchmark


(net of fees)(bps)

Target Tracking

Error*(bps)

TargetInformation

Ratio


EstimatedAnnual

Fee(bps)

REIT $708.1 78.9% U.S. REIT 50 200 0.25 $0.3 3.9

Opportunistic/Hedge Funds 171.7 2.0% Custom** 0 300 0.00 0.8 45.3

Commodities $17.9 19.1% SPGSCITR 0 300 0.00 $0.0 19.0

*The tracking error ranges for Health Care Alternatives is 0 - 300 bps.**The Health Care Opportunistic/Hedge Funds custom benchmark is a blend of LIBOR + 4% and Barclays High Yield Index.



71

Private Equity

Investment Strategy

OPERS seeks to maintain a top-tier Private Equity program that generates attractive, risk-adjusted long-

term returns. The following information details the short and long-term strategic efforts for achieving this

objective.

Beginning in 2010, the Board approved an increase in the target private equity allocation for the Defined

Benefit Fund from 5% to 10%. As of June 30, 2009, the actual allocation was 4.1%, which was well

beneath both the prior allocation target of 5% and the revised target of 10%. It is expected to take 5-years

or longer to reach this new target assuming general economic activity resumes a more normal state

following the significant economic downturn and excessive market swings experienced in 2008 and 2009.

In addition to the traditional approach to portfolio construction (building a concentrated portfolio of new

commitments to a few managers), Staff will be considering other approaches to building allocation to the

asset class if they can be accomplished without fundamentally altering the program’s established strategy.

These tactical approaches may be especially appropriate in the current environment and are intended to

reduce execution risk, shorten the holding period for investments, mitigate the impact of the J-Curve, while

providing the program with attractive risk-adjusted returns.


OPERS Private Equity performance is benchmarked on a long-term, 7-10 year, rolling basis against the

Russell 3000 plus 300 basis points using the internal rate of return (IRR) cash flow methodology.

Risk Management

Risk management within private equity is based on portfolio parameters designed to control:

Liquidity

Vintage Year Risk

Manager Concentration Risk

Firm Risk

Currency

Industry

Geography

Leverage



72

Actual vs. Targeted Portfolio Composition

The Private Equity portfolio had an unaudited market value of $2,147 million as of June 30, 2009 and

included approximately $2 billion in unfunded commitments to existing managers. The Private Equity

portfolio will continue to be built over time and balances the need for exposure with available opportunities

and vintage year risk. The following table displays the actual diversification of the portfolio by strategy and

geography based on the fair market value of the underlying funds.

It is anticipated that the special situations allocation may grow to near 20% over the next few years as most

opportunities in today’s environment fall within this class. The geographic allocation differences versus the

target in the table above are the result of assigning managers to domestic or international, rather than using

a global category. The following table displays the geographic allocation based on the fair market value of

the underlying portfolio companies.

Domestic International Total

Actual

61.3%

14.3%

12.3%

87.9%

Target

45.0%

10.0%

10.0%

65.0%

+/-

16.3%

4.3%

2.3%

22.9%

Corporate Finance

Venture Capital

Special Situations

Total

Actual

10.9%

0.0%

1.3%

12.1%

Target

30.0%

0.0%

5.0%

35.0%

+/-

-19.1%

0.0%

-3.7%

-22.9%

Actual

72.2%

14.3%

13.6%

100.0%

Target

75.0%

10.0%

15.0%

100.0%

+/-

-2.8%

4.3%

-1.4%

0.0%

Actual

68.3%

31.7%

100.0%

Target

65.0%

35.0%

100.0%

+/-

3.3%

-3.3%

0.0%

Domestic

International

Total



73

Commitment Pacing

Multi-factor models are used to determine the rate of commitments to achieve the target market value

exposure over the target period of time. The graph below depicts the updated investment-pacing model in

millions of dollars per year to achieve a 10% target for the Defined Benefit Fund. The pacing model

estimates that the Defined Benefit Fund will reach the desired market value exposure by year-end 2014.

These pacing estimates may vary from year to year depending on realized performance and market

conditions. Vintage year is the year in which a partnership makes its first investment; this sometimes differs

from the year in which OPERS makes its commitment. The information below shows the actual and

projected commitments made each year, rather than vintage year commitments.

2,500

2,000

1,500

1,000

500

0

$ m

illi

on

s

Annual Commitment Pacing

Actual Annual Commitments Projected Annual Commitments

FMV and Commitment Growth

$ b

illi

on

s

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

Actual Aggregate Commitments

Actual FMV Projected Aggregate Commitments

Projected FMV

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

2002 2003 2004 20062005 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

0.6% 0.7% 0.7% 0.8%1.4%

2.1%

3.2%

4.3% 4.4% 4.4%

4.4%

7.3%

8.6%

9.8%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

0.2 0.30.7

0.3

1.40.4

2.1

0.8

2.9

1.4

3.8

2.3

4.5

2.5

4.9

2.2

6.9

2.5

8.9

3.3

10.9

4.4

12.9

5.5

14.9

6.6



74

Commitments in 2010

The 2010 investment pacing targets $2,000 million in commitments. The expectation is that the number of

commitments will be between 11 and 16. The size of commitments is expected to range between $75 and

$350 million, depending on the strategy.

General Partners

General partner selection is critical for out-performance and Staff proactively seeks relationships with

experienced, top-tier general partners. Working with the private equity advisors, peers and all available

resources, Staff filters and reviews the general partners in each subclass and initiates a dialogue regarding

potential participation in their new partnerships. Further, Staff limits exposure to first-time general partners.

The private equity general partner selection procedures describe the due diligence process and factors for

consideration.

The vast majority of our commitments will be through primary participation in general partnerships. This is

so that partnership rights can be fully exercised and Staff can participate in all meetings and actively

monitor partnerships.

Asset Management Fees

The following table estimates the private equity asset management fees for 2009. Note that private equity

fees relative to market value are skewed in formative years due to the lag between commitments and

investments. Significant portions of the fees are recoverable before general partners receive carry.

Anticipated Commitments in 2010 ($ millions)

Corporate Finance

Venture Capital

Special Situations

Fund of Funds

Ranges

250 - 750

0 - 200

300 - 750

0 - 75

420 - 1,120

0 - 250

0 - 0

0 - 250

0 - 250

0 - 460

250 - 1,000

0 - 200

300 - 1,000

0 - 325

1,500 - 2,500

Estimate of Management Fees - 2010 ($ millions and bps)

Estimated Average Commitments $5,920

Estimated Average Market Value $2,777

Estimated Average Fee 1.25%

Estimated Management Fee ($ millions) $74.0

Estimated Management Fee (bps) 266

Domestic International Total



75

Real Estate

Private Markets

Market Conditions and Outlook

Staff believes that the recession of 2007-2009 will provide OPERS with attractive commercial real estate

investment opportunities in 2010. To raise the needed capital, Staff further believes that owners will be

incented to sell their highest quality and most desirable properties first. OPERS should have the

opportunity to acquire high quality properties at attractive prices.

There is an estimated $1 trillion of commercial real estate debt scheduled to mature over the next three

years. There is currently a limited supply of new debt for commercial real estate. Many owners will not be

able to refinance the balances owed on maturing loans because of tighter lending standards and lower

anticipated property level cash flows.

Commercial real estate property fundamentals, occupancy and rental rates, continue to deteriorate. Staff

believes that property level cash flows may continue to deteriorate for the next two years because of this

combination of lower occupancy and rental rates. From 2002 to mid-2007, abundant and inexpensive debt

and equity capital led to increased commercial real estate prices. Capitalization rates (caps, or cap rates)

for stabilized assets, historically in the range of 7.50% to 8.25%, fell to a range of 4.75% to 6.25%. Staff

anticipates that the market will over-correct and that high quality properties will trade at caps in the range of

8.00% to 9.50%. The consensus opinion anticipates that the 2010 total return for the NCREIF Property

Index (NPI) will be a negative 8%, according to the total return swap derivative pricing found on Markit.com.

The consensus view is that while commercial real estate prices continue to decline, investors should “sit on

the sidelines” until property fundamentals begin to improve.



76

Investment Strategy and Portfolio Construction

The Private Market Real Estate program consists of a stable, or beta portfolio and a high-return, or alpha

portfolio. The Beta portfolio is comprised of stable cash-flowing core properties and constitutes no less

than 65% of the Private Market Real Estate portfolio, according to the Real Estate policy. The high-return

alpha portfolio consists of all private market real estate investments that are not in the beta portfolio. The

high-return portfolio includes both U.S. and Non-U.S. Real Estate investments. The alpha strategy may

include investments in non-core real estate activities such as development, redevelopment or repositioning

of all property types. The following graph shows to composition of the private market portfolio by

investment style as of June 30, 2009.

Projected Investments by Channel

Staff believes that both top-down portfolio construction and a bottom-up asset review is necessary for

successful portfolio construction. In 2010, Staff currently plans to allocate additional capital to private

market real estate through all three investment channels: separate accounts, open-end commingled funds

(OECFs) and closed-end funds. The 2010 investment emphasis will be on stable assets and motivated

sellers.

Separate Accounts

Staff is allocating an estimated $683 million to separate account managers in 2010, consisting of an

estimated $189 million to complete the repositioning/redevelopment of existing assets plus an anticipated

$494 million for new acquisitions. Staff has also approved up to $124 million of property sales, to allow

managers to cull the portfolio and make opportunistic sales. By year-end 2010, Staff anticipates the value

of the separate account portfolio will be $2.93 billion.

Open-End Commingled Funds

The managers of the OECFs aggressively wrote down the values of their portfolios in 2009. Staff believes

that these open-end funds will present OPERS with an opportunity to access portfolios of stabilized

properties at attractive pricing at some time in the future. Staff may invest up to $600 million in OECFs in

2010 depending on market fundamentals and portfolio valuations.

Allocation by Investment Style as of June 30, 2009

AlphaBeta

81%

19%



77

Closed-End Funds

Staff anticipates that the general partners will call the remaining $428 million of OPERS’ commitments over

the next three years. Staff intends to make renewed commitments to select general partners and to new

ones. Staff also intends to continue to invest in Non-U.S. Real Estate through the closed-end fund channel.

Staff anticipates committing $225 million to $275 million in three to five partnerships during 2010.

Projected Portfolio Composition

Assuming all discussed investments were made, the following table and graphs show the anticipated

composition of the private market real estate portfolio by property type, investment channel and investment

style by year-end 2010.

Projected 2010 Property Type Exposure and Policy Ranges

Pe

rce

nta

ge

Apartment Industrial Office Retail Other

50%

40%

30%

20%

10%

0%

50%

40%

30%

20%

10%

0%

Anticipated Total Private Market Real Estate Investment Activity for 2010 ($ millions)

Property TypeMarket Value June 30, 2009

2010Dispositions

2010Income

2010 Acquisitions

ProjectedMarket Value*

December 30, 2010

Apartment $738 $50 $29 $335 $994

Industrial 457 39 20 247 643

Office 1,453 38 58 460 1,954

Retail 583 6 23 393 1,009

Other 910 3 6 118 1.026

Total $4,141 $137 $135 $1,553 $5,626

*Includes 2nd half 2009 acquisitions, dispositions and cumulative appreciation/(depreciation) as of 12/31/2010.(subject to change)



78

Performance and Risk Control Parameters

The Private Market Real Estate portfolio performance is expected to meet or exceed the National Property

Index (NPI) over rolling five-year periods. The portfolio is measured net of all fees, (which average 100

basis points annually). NPI is not adjusted for fees.

Projected 2010 Allocation by Investment Style

AlphaBeta

Projected 2010 Allocation by Channel

SeparateAccounts

OECFs Closed End Funds

52%

23%

25%

25%

75%



79

The tables below show the anticipated year-end 2010 portfolio construction by the following risk control

parameters: life cycle; geography; and leverage.

Asset Management Fees

The following table estimates fees based on the anticipated changes to the portfolio discussed above.

Life Cycle Exposure

Type Policy Limit Projected

Core >65% 82%

Non-Core <35% 18%

Geographic Exposure

Type Policy Limit Projected

United States >75% 92%

International <25% 8%

Portfolio Level Leverage

Policy Limit Projected

40% 35%

Anticipated Manager Fees ($ millions)

ChannelAverage

Asset BaseEstimated

Fee%Estimated

Fees

Open-End $960 1.00% $9.6

Closed-End* 1,600 1.50% 24.0

Separate Account 2,650 0.80% 21.2

Total $54.8

*Based on committments not market value



80

Real Estate

Public Markets

Defined Benefit Fund

OPERS no longer has a strategic allocation to real estate investment trusts (REITs) in the Defined Benefit

Fund. Staff intends to use REITs as tactical investments to augment the private market portfolio.

Advantages to adding REITs to the real estate portfolio include:

Diversification – REIT price movements to not coincide with the movement of the NPI, therefore REITs

have historically provided some diversification benefits to a private market real estate portfolio

Property Type Access – Staff may invest in REITs to gain access to property specific portfolios that

would be difficult to acquire on a direct basis, such as a portfolio of super-regional malls

Pricing Anomalies – Staff also envisions an investment in REITs when public market real estate

securities trade at discounts to private market real estate prices.

REIT investments in the Defined Benefit Fund will no longer have a separate benchmark. OPERS will

invest in REITs if Staff believes that adding public real estate securities to the real estate portfolio will

increase the probability that the OPERS Real Estate portfolio will outperform the NPI. Staff may use the

internal active portfolio, a passive portfolio, derivatives or private placements to invest in pubic real estate

securities.

Health Care Fund

Strategy

OPERS has retained an allocation to publically traded real estate securities in the Health Care Fund. The

public market real estate allocation serves as the only real estate exposure in the Health Care Fund. The

public real estate securities portfolio (the REIT portfolio) will be invested in an internal, actively managed

domestic portfolio. The real estate securities portfolio is managed using a blend of quantitative and

qualitative analysis to identify companies that are trading significantly below their intrinsic value or are

priced inefficiently relative to their peer set. The strategy results in a diversified portfolio that is able to

produce consistent risk-adjusted returns.

Performance Objectives & Risk Control

The Internal Active Real Estate Securities performance is benchmarked against the Wilshire Real Estate

Securities Index (WRESI). The Internal Active Real Estate securities portfolio is measured net of fees (not

including overhead expenses). WRESI is not adjusted for fees. The Internal Active Real Estate Securities

portfolio is expected to exceed the benchmark returns by 50 basis points annually. The Real Estate policy

establishes the program risk controls (liquidity and diversification) and investable instruments.



81

Opportunistic/Hedge Funds

Strategy

Opportunistic investing allows OPERS to access investment strategies and new instruments that do not fit

within one of the traditional asset class categories. There is no overall strategy for the asset class. Each

potential strategy, such as those described below, will be evaluated on its own merit and whether the

strategy is feasible and scalable.

Hedge Funds

This strategy is presently accessed through fund-of-funds and is 100% externally managed by Crestline

Investors, Inc. and Pacific Alternative Asset Management Company. Each was initially funded with $25

million in early 2006. In May 2007, the Board approved, and Staff completed, an additional funding of $25

million for each manager. The Board has increased its allocation to hedge funds/opportunistic beginning in

2010. Staff will be evaluating its approach to the asset type and making further recommendations on

implementation to the Board.

Active Currency

The hiring of external managers to manage active currency mandates was approved by the Board in August

2006. Several managers in the Non-U.S. Equity asset class manage currencies actively. However, no

dedicated currency managers have been hired.

Opportunistic Portfolio

Staff currently manages “distressed debt-like” funds within the hedge funds/opportunistic allocation because

this is not presently recognized as a long-term strategic objective. This use of a portion of the opportunistic

allocation will continue to be evaluated.

The limited size of the Opportunistic program is the primary risk-control mechanism. It is envisioned that

eventually no single program or strategy will account for more than 35% of the total market value of the

Opportunistic asset class. Risk-adjusted performance of the Opportunistic program is expected to be

competitive with OPERS’ total fund return benchmark.

CommoditiesStaff successfully invested over $50 million in commodity futures in 2008 and continued to study the asset

class in 2009.

InfrastructureThe Board approved a 2% allocation to infrastructure investing beginning in 2010. Staff is evaluating

accessing the asset class through both public and private investments, as well as other relevant aspects of

the proposed asset class policy. The allocation seeks to participate in the favorable risk/reward

characteristics of investments in real assets with stable cash flows, as well as the long-term nature of

investments and their tendency to produce returns which keep pace with inflation. Infrastructure

investments may also be an ideal way to gain exposure to developing economies. OPERS exists to serve

public employees, so there is no desire to invest in, or encourage others to invest in, assets where the

welfare of public employees would be diminished.


Appendix


APPENDIX A

82

Advisors’ Reviews

The Townsend Group

Date: November 25, 2009Subject: The Annual PlanTo: OPERS BoardCc: OPERS StaffFrom: Steve Burns

The Real Estate Consultant (“Townsend” or “Consultant”) to the Ohio Public EmployeesRetirement System ("OPERS") has reviewed the 2010 Real Estate Department Annual Plan("Annual Plan"). The Annual Plan is consistent with accomplishing the goals and objectives setforth in the OPERS Real Estate Policy ("Policy") which was revised and approved in 2007. Werecommend that the board approve the Annual Plan, and we offer the following comments.

The 2010 Annual Plan recommends placing additional capital in each of the three investmentchannels (separate accounts, open-end funds and closed-end funds) in the real estate portfolio.The focus will be on purchasing stable, income producing property opportunistically frommotivated sellers. Current capital projections will target $1.3 billion to new investments and$189 million for current investments resulting in total capital commitment activity of $1.5billion. In addition, $428 million in unfunded commitments remain outstanding from pastinvestment commitments and are expected to be drawn over the next several years. Given therecent re-pricing of the real estate asset class, and consensus view that the market is reaching abottom, capital deployed throughout 2010 is expected to yield attractive returns.

The market value of the private real estate program (“Program”) was approximately $4.2 billionas of June 30, 2009. Following projected acquisitions of $1.5 billion and $137 million ofstrategic dispositions in 2010, the projected year-end market value is approximately $5.6 billion.These figures are dependent upon the resumption of a normal transaction environment in thereal estate markets, which has been minimal through 2009.

With a focus on stable, income producing properties during 2010, an increase in allocation to theseparate accounts and open-end funds is an effective and efficient manner in which to executethe plan. Separate accounts will be allocated $683 million ($189 for current projects) which isexpected to increase the market value of this channel to $2.9 billion at year end (assuming $124million in planned strategic disposition activity) or 52% of the real estate portfolio. Open-endfunds are being allocated $600 million, which would bring the year-end 2010 projected marketvalue to $1.28 billion or 23% of the portfolio. Both of these allocations are intended to providethe Program access to stable, income producing properties at attractive pricing while providingdiversification. The open-end funds may be delayed in drawing capital as both deposit andredemption queues have formed over the past year.


APPENDIX A

83

This situation occurs when fund management becomes uncomfortable with current pricing andwill clear when the valuation activity settles, which is expected in the near future. Maintaining aconservative focus in the separate accounts and open-end funds is a prudent course of action.

Closed-end fund vehicles have outstanding unfunded commitments of $428 million that will becalled over the next several years. An additional $225-275 million will be allocated to thischannel during 2010 bringing their allocation to 25% of the portfolio. Given the recent realestate market events, the most common investment theme observed has been distress. Distresscan be observed in many ways including a need for rescue capital or a seller disposing of assetsat a discount when motivated by the need for liquidity. The allocation to the closed-end fundswill be used to take advantage of this distress and yield attractive opportunities for the program.In addition, the capital will be used to expand the global nature of the real estate portfolio, whichis currently at the lower end (less than 5%) of the allowable range (up to 25%) of investmentsoutside the US.

The Annual Plan projects the amount of capital that will be invested by property type for eachinvestment channel (separate accounts, open-end funds and closed-end commingled funds).Following the current allocations, the portfolio is expected to be comprised of 52% separateaccounts, 23% open-end funds and 25% closed-end commingled funds. Additionally, theportfolio projects to be in compliance with diversification guidelines set forth in the Policy. Webelieve that it is important to ensure that the total Program is developed in a manner consistentwith the Policy including diversification by property type. We also believe that it is important tohave flexibility by investment channel. Maintaining flexibility in this environment is moreimportant than ever before and will provide the ability to take advantage of opportunities as theyarise.

Given the challenging economic environment, it is our opinion that the Annual Plan applies adisciplined and pragmatic approach, which is consistent with the Policy. Current capital marketconditions will continue to require diligent oversight and judgment on the part of Staff andTownsend.

Please do not hesitate to contact me if there are any questions.

Regards,

Steve BurnsPrincipal


APPENDIX A

84

MEMORANDUM

To: Ohio Public Employees Retirement System (“OPERS”)

From: Hamilton Lane

Date: November 23, 2009

Re: 2010 Annual Investment Plan

Hamilton Lane has worked in conjunction with OPERS Staff in developing the 2010 Annual Investment Plan

(the “Plan”) with respect to the private equity program of the Defined Benefit Fund (the “DB Fund”).

Recognizing the planned elimination of a private equity allocation within the Healthcare Fund, our collective

work for the 2010 plan centered on the DB Fund. As part of our strategic planning process, we have

employed our Horizon Model, a proprietary, multi-state/multi-period investment pacing model. Particular

focus was given to the increase of the targeted private equity allocation to 10% for the DB Fund, and the

steps necessary to move the fund’s actual exposure towards that target over the course of the following five

or more years. The inputs for this analysis, which employs multi-variable modeling, combines over 20

years of historical data in our investment database, Hamilton Lane’s and OPERS’ Staff’s views of the

private equity market risk and returns, commitment size, total number of relationships and asset sub-class

diversification among other factors.

Hamilton Lane believes that the Plan is tailored to meet OPERS’ long- and short-term objectives relative to

the private equity asset class and is in conformance with Policy restrictions and guidelines.


APPENDIX B

85


APPENDIX B

86


APPENDIX B

87


APPENDIX B

88


APPENDIX B

89


APPENDIX B

90


APPENDIX B

91


APPENDIX C

92

Department/Title Hire Date Experience Education Designations

U.S. Equity

Internal

Management –

Senior Investment Analyst

June 1999 10 years

1993: B.S. Business Administration,

The Ohio State University

1999: M.B.A., The Ohio State

University

Fund

Management –

PortfolioAssistant

April 2009 5 years

2002: A.A.B., North Central State

College

2004: B.S. Business

Administration, Ashland University

2008: M.B.A., Ashland University

Level I Candidate in

CFA Program

Global Bonds

Internal

Management –

Cash/SecuritiesLending Analyst

November

200014 years

1995: B.S. Finance,

The Ohio State University

External Public

Markets –

Senior InvestmentAnalyst

October

199318 years

1989: B.S. Business

Administration, The Ohio State

University

1993: M.B.A. The Ohio State

University

1997: CFA

Charterholder

2009: Chartered

Alternative

Investment Analyst

U.S. Equity

Internal

Management –

Investment Analyst

September

20087 years

1996: B.A. Economics, University

of Chicago

2006: M.B.A., Cornell University

2006: CFA

Charterholder

Fund

Management –

PortfolioAssistant

January

20093 years

2005: B.S. Finance, Wright State

UniversityLevel III Candidate

in CFA Program

Steven F. Barker

Joshua

Biddinger

Teresa Black

John C. Blue

Joseph D.

Boushelle

David

Buchholz

Name


APPENDIX C

93


Global Bonds

Internal

Management –

Portfolio Manager

March 2006 15 years

1992: B.S. Finance, Miami

University

1998: M.B.A. Case Western

Reserve

2008: CFA

Charterholder

Private Equity –

PortfolioManager

March 2007 11 years

1985: B.A. History, Tulane

University

1992: M.B.A. University of Chicago

1992: M.A. Middle Eastern Studies,

University of Chicago

2002: CFA

Charterholder

Office of the

CEO –

InvestmentComplianceOfficer

September

200646 years

1960: B.A. Political Science,

Pennsylvania State University

1963: J.D. Harvard Law School

Attorney

Office of the

CEO –

InvestmentReportingManager

July 2000 31 years1985: B.S. Finance, Miami

University

Global Bonds

Internal

Management –


June 2002 8 years

1997: B.S. Finance, Miami

University

2002: M.B.A. Case Western

Reserve

2005: CFA

Charterholder

Global Bonds

Internal

Management –


January

20028 years

1994: B.S. Business

Administration, Bowling Green

University

2002: CFA

Charterholder

Erik Cagnina

Louis Darmstadter

Alan J. Davidson

Mark Ehresman

Tony Enderle

Pat Edgington

Name


APPENDIX C

94


Fund

Management –

InvestmentAdviser

July 2000 18 years

1989: B.S. Mathematics, Purdue

University

2005: M.B.A. Franklin University

2001: CFA

Charterholder

Global Bonds

Internal

Management –

Portfolio Manager

January

200424 years

1968: B.A. European History, Yale

University

1977: M.A. History, Ohio University

1985: M.A. Finance, The Ohio

State University

1989: CFA

Charterholder

Office of the CIO

– Risk ManagerApril 2008 11 years

1989: B.S. Economics,

Allegheny College

1990: M.B.A., University of

Pittsburgh

2006: CFA

Charterholder

Global Bonds

Internal

Management –

Senior Portfolio

Manager

March 2009 20 years

1983: B.A. Political Science,

Kalamazoo College

1990: M.B.A. Economics,

University of Detroit

1993: CFA

Charterholder

U.S. Equity

Internal

Management –

Senior Investment

Analyst

July 2000 9 years

1992: B.A. Psychology,

Indiana University

1993: B.S. Business Finance,

Indiana University

2001: CFA

Charterholder

Fund

Management –

QuantitativeAnalyst

October

20009 years

1982: B.S. Physics, Nanjing

Institute of Technology China

1989: M.S. Physics, The Ohio

State University

Eric France

Dan German

Paul Greff

Christopher

Gregson

Xinyang Gu

Roger Fox

Name


APPENDIX C

95


Office of the CIO

– ExecutiveAssistant

January

200010 years

2004: A.S. Business,

Ohio Dominican University

Global Bonds

Internal

Management –


April 2008 5 years2003: B.S. Finance, Miami (OH)

University

2007: CFA

Charterholder

U.S. Equity

Internal

Management –

InvestmentAnalyst

July 2008 16 years

1989: B.S. Business, Marist College

1999: M.B.A. Finance, Case

Western Reserve University

1999: CFA

Charterholder

U.S. Equity

Internal

Management –

Senior PortfolioManager

March 2007 17 years

1989: B.S. Mathematics, Purdue

University

1991: M.S. Statistics, University of

Cincinnati

1992: M.B.A. University of Cincinnati

1997: CFA

Charterholder

U.S. Equity

Internal

Management –


January

200921 years

1988: B.A. Economics, St. Norbert

College

1995: M.B.A. Finance and

Transportation, Kellogg Graduate

School

1992: CFA

Charterholder

Fund

Management –

Fund Manager

January

200213 years

1996: PhD. Economics, The Ohio

State University

2001: CFA

Charterholder

2004: Financial

Risk Manager

2004: Professional

Risk Manager

Nick Kotsonis

Deryck Lampe

Jack Lake

J.G. Lee

Mary Ann Kabbaz

Brian Langenberg

Name


APPENDIX C

96


U.S. Equity

Internal

Management –


June 1998 11 years

1994: B.A. Accounting, Thomas

More College

1998: M.B.A. University of

Cincinnati

1999: CPA

Global Bonds

Internal

Management –

Cash/SecuritiesLending Manager

February

200418 years

1991: B. Business Administration,

Abilene Christian University

2002: M.B.A. Ashland University

2009: CTP –

Certified Treasury

Professional

Fund

Management –

Deputy ChiefInvestment Officer

July 2005 28 years

1979: B.S. Mechanical

Engineering, Kettering University

1981: M.B.A. University of

Pennsylvania

1985: CFA

Charterholder

U.S. Equity

Internal

Management –

Portfolio Manager

June 2005 19 years

1985: B.S. Political Science,

University of Connecticut

1991: M.B.A. Washington

University

2000: CFA

Charterholder

U.S. Equity

Internal

Management –

InvestmentAnalyst

October

20087 years

2002: B.S. Economics, Wharton

School, University of Pennsylvania

Level III candidate

in the CFA program

External Public

Markets –

Portfolio ManagerJune 2001 15 years

1993: B.A. History, Mt. Holyoke

College

1994: B.A. Economics, The Ohio

State University


University

Level II candidate

in the CFA program

William Miller

Scott Murray

Michael J. Parker

DeAnne B. Rau

Jerry May

Kevin Martin

Name


APPENDIX C

97


Global Bonds

Internal

Management –

Portfolio Manager

October

200720 years

1979: B.S. Finance, Indiana

University

1982: M.B.A. Indiana University

1993: CFA

Charterholder

Fund

Management –

Equity TraderJuly 1982 27 years

External Public

Markets –

Portfolio ManagerJune 1984 25 years

1982: B.S. Business Administration

and Mathematics, Marietta College


University

1988: CFA

Charterholder

External Public

Markets – DeputyChief InvestmentOfficer

May 2009 36 years 1973: B.A. Dartmouth College

1980: CFA

Charterholder

Fund

Management –

Senior EquityTrader

May 2006 15 years

1994: B.A. Economics, The Ohio

State University

2000: M.B.A. Otterbein College

Private Equity –


June 2006 8 years2000: B.A. Economics, University

of Rochester

2005: CFA

Charterholder

2007: Chartered

Alternative

Investment Analyst

Daniel J. Sarver

Richard Shafer

Matthew Sherman

Samir Sidani

Christy Ruoff

Chris Rieddle

Name


APPENDIX C

98


Global Bonds

Internal

Management –


May 2002 11 years

1995: B.S. Finance, The Ohio State

University


University

2005: CFA

Charterholder

Fund

Management –

Trading Manager

October

200334 years

1974: B.A. Economics, Mount

Holyoke College

1977: M.B.A. Fordham University

Real Estate –

Portfolio ManagerOctober

199514 years

1986: B.A. Economics, Hanover

College


University

2000: CFA

Charterholder

Real Estate –

Portfolio ManagerFebruary

198816 years

1979: B.A. Economics, University

of Cincinnati

1982: M.A. Economics, University

of Cincinnati

1982: M.A. Industrial Relations,

University of Cincinnati


University

U.S. Equity

Internal

Management –


August

199811 years

1980: B.S. Business

Administration, The Ohio State

University

1983: CPA (inactive)

1988: CMA

1995: CFA

Charterholder

2007: CMT

Fund

Management –

QuantitativeAnalyst

March 2004 15 years

1991: M.S. Mathematics, New

Jersey Institute of Technology

1994: M.B.A. The college of

Insurance

Stephen

Stuckwisch

Bradley E. Sturm

Timothy J. Swingle

Roger Tong

Joan Stack

Todd Soots

Name


APPENDIX C

99


Real Estate –


August

20009 years

1980: B.A. Economics, U.C.

Berkeley

1994: PhD. Russian Literature, The

Ohio State University


University

2009: Chartered

Alternative

Investment Analyst

External Public

Markets –

InvestmentAdministrationAnalyst

April 1999 8 years

1993: B.S. Accounting, University

of Dayton

2001: M.B.A. Franklin University

Fund

Management –

Fund ManagerJune 1994 17 years

1990: B.S. Business

Administration, University of Toledo


University

2001: CFA

Charterholder

Fund

Management –

InvestmentAssistant

December

200024 years

1987: A.S. Business, Bliss

Business College

Erick D. Weis

JoAnn Yocum

Kimberly

Van Gundy

Lewis Tracy

Name

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