Retirement insights from a Colorado PERA perspective

Inside Colorado PERA

A closer look at PERA’s investment expenses

2018 markets

PERA operates a relatively low-cost investment program. In total, PERA manages about $48.9 billion in assets on behalf of 580,000 current and former public employees. In 2017, PERA spent approximately $173 million on internal and external investment management expenses, or less than one-half of one percent of the total fund. In other words, PERA spends about 0.35 percent of total assets to manage a multi-billion dollar portfolio that is responsible for generating returns used to provide retirement income to hundreds of thousands of PERA members. By way of comparison to this annual cost of $173 million in investment expenses, PERA pays out $1.2 billion each quarter in benefits to retirees.

In order to limit costs, PERA staff historically has managed a portion of PERA fund assets in-house. In 2017, about 55 percent of total assets were managed internally by PERA investment professionals. As a result, PERA saved more than $45 million last year alone in fees it would otherwise have paid to external managers.

For additional information, see the “Less Is More: How PERA Limits Investment Costs to Maximize Returns” fact sheet.

In addition to managing assets internally, PERA strives to negotiate favorable external management fees. As a result of internal management plus judicious external fee structures, PERA has kept investment expenses competitive with those of public pension plans of similar size. The PERA Board’s investment consultant Aon has determined that the range of investment expenses relative to assets under management is between 0.25 percent and 0.59 percent. The average expense amount is 0.37 percent. In other words, PERA’s investment expenses at 0.35 percent are well within an acceptable range of comparisons and lower than the average when measured against other public pension funds.

PERA’s investment program is guided by PERA’s overall philosophy to keep expenses low in order to maximize resources for the membership. Specifics about the investment program may be found in the Board-adopted Colorado PERA Statement of Investment Policy.

While it is important to focus on cost savings, it would not be worth conserving resources if investment returns were below expectations. PERA’s combined approach to internal and external management has not only led to low overhead, but it has also generated an overall investment return of 7.0 percent over the past 20 years and 8.7 percent over the last 15 years (net of all fees). This means that there is no choice between low cost and high performance, because PERA’s investment program has achieved both.

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