Investment consultant: Oklahoma City pension fund posts modest gains; consultant highlights debt, deficit and uncertainty

George Tarlos, an investment consultant with ACG, told trustees of the Oklahoma City Employee Retirement System that the pension fund had positive returns so far this calendar year and over the last 12 months.

"Little less than 3% on the whole. And then over the last 12 months, 7 and a half percent total return for your portfolio," Tarlos said, summarizing recent performance.

Tarlos said headline risks — trade disputes, budget debates, and questions about interest rates — have produced a lot of daily noise for investors but have not prevented the plan's positive results. "What investors don't like though, and my buzzword for today is uncertainty," he said.

Why this matters: The board manages benefits for current and future retirees and uses long-term return expectations to set asset allocation and contribution assumptions. Modest positive returns reduce short-term pressure on plan funding but trustees and staff continue to monitor risks that could affect long-term obligations.

Tarlos reviewed the plan's allocations and recent contributors to performance. He said the portfolio was ‘‘modestly over allocated equity, a little bit under in fixed income and real assets’’ through May and noted international developed equities have been particularly strong this year. "International developed markets equity, year to date is up 14 and a half percent," he said, while adding that currency moves affect returns when converted back to dollars.

The consultant identified two relative performance drivers for the plan: weak small-cap equity returns, which he said reflect smaller companies' sensitivity to floating-rate debt and trade uncertainty, and stronger international returns, helped this year by weaker U.S. dollar exchange rates.

Tarlos also flagged longer-term macro risks. He said national debt and deficit levels are a concern and noted recent rating-agency actions affecting investor confidence in U.S. government debt. "The cost, the interest cost to service that debt is now over a trillion dollars a year," he said, adding that rising interest costs can crowd out other government spending.

On monetary policy, Tarlos summarized recent data and market expectations: unemployment remains low, inflation has come down from recent peaks, and market forecasts include the possibility of two or three Federal Reserve rate cuts this year, though he emphasized the Fed's decisions are data dependent.

On portfolio management, he told trustees the plan's target allocations are designed to deliver the pension fund's long-term, risk-adjusted returns and cautioned against reacting to short-term market noise. "We don't want to react to that. We want to be thoughtful about do we want to make any modifications," he said.

Trustees accepted the report; the board planned to formally receive the consultant's written report when a full quorum was present.

The board chair thanked Tarlos for the presentation and noted Jason (an investment staffer referenced by Tarlos) would return for a deeper review of the international portfolio at a future meeting.