Here is my testimony to the Oregon Investment Council for its December 3, 2025 meeting.

Members of the Oregon Investment Council:

Bad advice, bad timing, weak institutional memory, and lack of critical thinking. These are just some of the factors that have led to your investing meltdown of the last four years. This council needs to do better, a lot better.

In 2019, your advisors pushed you to seek higher returns by investing more in alternatives while downplaying public equities. A recent Bloomberg piece described how advisors got into the business of pushing for alternatives, noting “… there’s scant evidence pensions with the highest allocation to alternatives outperform their counterparts.”

Studies show financial advisors are pretty terrible at predicting investment performance. But their predictions are presented to create a sense of credibility by including reams of analysis, Monte Carlo simulations, and what all. At the end of the day, however, their predictions have less than a 50 percent probability of being close to reality, according to CXO Advisory’s Guru Grades.

Nonetheless, you embraced your advisors’ recommendations and cut your allocation to public equities from 37.5 percent down to 30 percent in just two years, upped your private equity to 20 percent, and launched your disastrous foray into risk parity with a 2.5 percent bet.

These choices made Oregon an outlier compared to the big four public pension funds, CALPERS, CALSTRS, TRS (Texas) and New York. Each of these funds maintained a hefty allocation to public equity (close to 40 percent) while keeping private equity in the mid-teens.

In 2021, your actual allocation to private equity ballooned to 25.7 percent as you claimed a 42 percent investment return in the sector. Time to party? Hardly.

In 2022, the wheels came off. Interest rates spiked, making your recent initiatives to increase private equity and risk parity allocations exactly the wrong thing to do.  Apparently when recommending these allocations, your advisors forgot interest rates could go up. That’s somewhat understandable since most of them (and you) weren’t out of college the last time interest rates were above 2 percent. That said, you and your advisors chose this risky path, one that was (and is) way outside the mainstream of other large pension funds and is extremely sensitive to rising interest rates. And you own the results.

Where was the critical thinking? Did anyone ask about the risks? Did anyone question the wisdom of reducing the public equity allocation to such a low level? Didn’t risk parity seem too good to true to anyone on the council, where you take a pile of government bonds and magically make them produce equity-like returns?

I listened to the meeting when the risk parity investment was approved. There were no questions of substance from council members. The approval was nothing but a rubber stamp.

The council has a history of similar deference to its advisors. But that is not how the council should conduct itself. Council members, as political appointees, must bring outside judgment to the table and constantly probe their advisors’ rationale, especially when advisors recommend courses of action that peer systems have declined to pursue or when something just doesn’t smell right. The council serves no purpose if it is not skeptical.

The 2022 collapse caused immense damage to your portfolio. As private equity distributions froze up, public equity was steadily drawn down, apparently to meet cash needs. And risk parity was abandoned after posting a 22 percent loss in 2022. Then you reduced your target for public equities further in 2023, to just 27.5 percent. Of course this made no sense, but it looks suspiciously like you wanted to try to make it closer to actual, which by then was just 16.5 percent thanks to the draw downs.

By the end of 2022, you were perfectly positioned mostly to miss out on the greatest bull market in decades. This is the real tragedy of this whole debacle. You would be in a far different place right now if you had maintained a public equity allocation even in the mid-30’s.

Years ago, I testified to the investment council that managing the public equity portfolio using a single all-world benchmark caused underinvestment in U.S. equities. I urged you to split the public equity allocation into two segments, one for U.S. stocks and one for international, then give U.S. stocks a significantly higher weighting than was provided in the all-world benchmark. Of course you ignored me. What would I know? After all, it was advice you didn’t have to pay huge fees to receive. We now have seen the U.S dramatically outperform the rest of the world in this bull market, again confirming Warren Buffett’s rule: never bet against the United States.

Your investing crisis has had a major impact on the PERS Board and its decision making. You have handed the PERS Board its worst nightmare: a prolonged period of poor investment returns. We recently learned that public agencies will face a huge increase in PERS contributions starting in 2027. This news, coming on the heels of an even bigger increase that begins this year, means that total PERS contributions will have increased 80 percent since the biennium just ended, to a shocking $9.35 billion for 2027-2029. While poor investment returns are not the sole cause of this increase, they have played a major role. The PERS Board is still using a 6.9 percent assumed rate of return on investments when calculating contributions. Yet, from 2008 to today, your fund has returned barely 6 percent. It is this mismatch that wreaks havoc at the PERS Board and eventually leads to higher contributions from public agencies.

It’s unclear how you extricate yourselves from your investing mess, but it is clear it will be a years-long process. Here’s a good starting point: acknowledge the extent of the problem and find its causes. Then show a sense of urgency in getting things back to some sense of normalcy.

I applaud Treasurer Steiner’s October 25 press release where she singled out the private equity allocation and the need to reduce it. However, in the same press release Treasurer Steiner spoke of the “upcoming” asset allocation review that occurs every four years. This indicates a business-as-usual approach that does not match the severity of the current situation. Why wasn’t this review moved up and conducted a year or two ago when it was clear the portfolio was in deep trouble? Also, I found the Treasurer’s September 3 press release misleading and unhelpful when she cherry-picked a few shreds of good news while not acknowledging the how bad things are. We don’t need cheerleading right now. We need a declaration of an investing emergency and a major investigation first to determine the root causes of your investing collapse, then find a way forward.

You should expand your asset allocation review to include an analysis by independent consults of the events of the last four years. Were these failures caused by a flawed investment strategy, such as your advisors’ push into alternatives at the expense of public equity, or were they caused by failures to execute the strategy, such as your staff’s inadequate rebalancing to bring actual allocations more in line with strategic targets? When these questions are answered, you will be able to take appropriate actions to start the process of rehabilitating your portfolio.

I urge you to look at Nevada’s PERS system as food for thought. Nevada has taken an entirely different approach to its investments than you have. Outside of a small allocation to private equity (about 12 percent), its portfolio looks much like an individual’s 401k, with appropriate allocations to equities (U.S. and international), bonds, and cash. It’s essentially a passively managed portfolio. Its 10-year return stood at 9.0 percent as of June 2025, 0.8 percent higher than your returns with far fewer staff and far lower investment fees.

Finally, there is the issue of accountability. Oregon doesn’t do accountability very well. In 1975, a series of PERS Boards, dominated by PERS beneficiaries, went on a quarter-century spree of pumping up pension promises far beyond the ability of the system to pay for them, resulting in the large unfunded liability that dogs the system to this day. All that time, governors and lawmakers watched from the sidelines. Finally, the City of Eugene had seen enough as its pension costs ballooned. The city sued, which eventually resulted in a ruling that the PERS Board had violated its fiduciary duty. No individuals were ever held accountable.

As you address your investing crisis and learn more details of its root causes, you need to keep accountability in mind. I understand that investing is risky and at times delivers very bad returns. Even passively managed portfolios have can have severe downturns. But a multi-billion-dollar foul-up of an actively managed portfolio, outside of the norms of its peers, needs investigation, and if that investigation finds misjudgments by advisors or staff, there needs to be consequences.

Best wishes as you embark on your reviews. And best wishes to your new board members, Elmer Huh and Tim Miller.

Douglas Berg