OPEB trust posts 13.6% calendar-year gain; committee discusses manager changes and FY26 budget uncertainty

The OPEB Trust Fund for Frederick County Public Schools ended the calendar year with a 13.6% total fund return and grew to just over $200 million, the committee heard at its quarterly meeting.

“Overall, the quarter was kind of a mixed, mixed bag,” said Tanya Keating, the committee’s investment advisor, as she reviewed fourth-quarter and calendar-year performance and attribution. Keating said U.S. equities drove most of the year’s gains while international equities and fixed income lagged for the quarter.

Keating told members the fund was roughly 3% overweight domestic equity and about 2% underweight fixed income relative to its asset-allocation policy, deviations she described as within allowable policy ranges. The trust’s weighted-fee level across funds was about 18 basis points, she said.

Why it matters: The OPEB trust underpins postemployment benefits for school employees; changes in investment performance, asset mix and contributions affect the plan’s funded status and the district’s long-term liabilities.

Performance and manager lineup Keating said the trust’s U.S. equity exposure is primarily indexed with Fidelity’s total stock-market fund and that international exposure is actively managed by American Funds. She reported a calendar-year return of roughly 24% for U.S. equities and that, for the quarter, the fund fell about 0.8%, slightly outperforming its blended policy benchmark (down about 1%). Longer-term returns average roughly 4% per year over the most recent three-year window, Keating said.

On fixed income, Keating said bond returns were negative for the quarter amid yield increases but that fixed income remains an attractive allocation given current yields. The committee confirmed it moved $12,200,000 into a new core-plus mandate managed by PGIM (Prudential) in December; Keating said performance for that manager will begin being tracked on Jan. 1, 2025.

Private-credit commitment Keating provided an update on Hamilton Lane, the private-credit manager. The committee has an approved $8.5 million commitment to Hamilton Lane Strategic Opportunities Fund 9, she said, with an anticipated first capital call before the end of the first quarter (likely March). The commitment is part of a pacing plan intended to reach a 7.5% private-credit target over several years.

Budget update and funding risk Heather Claybaugh, associate superintendent of fiscal services for Frederick County Public Schools, told the committee the district submitted its FY26 board-requested budget to the county executive, which includes a requested $1,600,000 contribution to the OPEB trust. Claybaugh said the full FY26 request to the county totals $35,000,000 and that the $1.6 million OPEB contribution’s inclusion in the final county budget is uncertain.

Claybaugh said state-level proposals under consideration could reduce the district’s state funding by nearly $6,000,000 for FY26 and that federal revenues — about 4% of the district budget — support programs affecting nearly 300 positions, the largest of which supports special education services. She noted the county executive typically presents a recommended budget by April 15 and the county council must approve a balanced budget by May 31; she said county statute prevents the county council from reducing the county executive’s recommended school funding amount (the transcript referenced this “by statute” restriction but did not cite a specific code section).

Questions and follow-up Committee members asked follow-up questions about fixed-income duration and how a continued steepening yield curve would affect holdings. Keating said she would follow up with managers to provide duration figures and additional analysis to the committee. Keating also offered to update the private-credit pacing study ahead of the committee’s next meetings if members want to evaluate accelerating commitments to reach the 7.5% target sooner.

Votes at a glance The meeting record shows the minutes of the Nov. 15 meeting were moved, seconded and approved by voice vote; no roll-call tally was recorded in the transcript.

The committee adjourned after the presentation and budget update; its next scheduled virtual meeting is Friday, May 16.