Ohio Agency Embraces Fixed Income in $15M Transition

November 21, 2005 (PLANSPONSOR.com) - Trying to work its way back from a scandal over its investment choices, the Ohio Bureau of Workers' Compensation has approved a sweeping reform program under which it fired its 69 money managers and opted to invest nearly its entire $15.7 billion portfolio in fixed-income funds.

As part of the transition program, the agency will move its $7.2-billion equity position over the next four months into fixed income, according to news reports.

The commission used the work of consultants Ennis Knupp and Callan & Associates in reaching its decision.   The agency also chose Wilshire Investments over Ennis Knupp to be its primary investment consultant, a role previously held by Callan. Officials pegged their transition costs to the news investment plan at $15 million.

The agency has been overhauling its financial strategy since revelations last spring that it lost more than $300 million in investments, including $13 million in a rare-coins venture and $215 million in a hedge fund.

Workers’ comp officials say the fund managers being discharged did nothing wrong but it was easier to dismiss them all so the agency can start fresh. “We have given everyone a passing grade, and terminated them,” said Michael Koetters, chairman of the Oversight Commission’s investment committee, according to the Toledo Blade.

Koetters said the bureau’s long-term financial outlook would be “bleak” if the agency didn’t modify its portfolio.

The manager transition included the firing of six international and 44 domestic equity managers. The committee also voted to ax 19 fixed-income managers, who oversee less risky funds. Assets in those funds will be moved over the next 12 weeks, officials said, saving the agency about $33 million annually in management fees.

At the same time, the agency is keeping 54 managers of 68 private equity funds, explaining that the bureau has multiyear contracts with those managers that can’t be broken. In September, the bureau released a report by Ennis Knupp that said the State Insurance Fund had lost almost $1 billion in potential returns during the last decade by relying on subpar investment managers.

Once the bureau’s equities are moved into fixed-income funds, the only non-fixed-income funds in the agency’s portfolio will be alternative investments, officials said.