PERA’s approach to sound investment stewardship includes protecting members’ assets through cost-conscious investment management. This, in turn, protects the long-term value of the PERA portfolio, benefitting members and retirees. Knowing that many PERA members will retire decades, even a generation into the future, PERA adheres to a financial stewardship approach that limits costs today, preserving the value of its assets for years into the future.
Investing sustainably for the long-term: PERA’s investment portfolio must meet the perpetual needs of its membership. With this long-term investment horizon, the portfolio must be sustainable, requiring a broad and diverse range of assets in different classes, markets, and sectors. And PERA must navigate excess volatility created in the markets by investors who react to short-term signals. One way to achieve this is by seeking companies with strategies built for longevity. These are high quality firms that adapt their business models to meet the expectations of stakeholders, including investors. In the long run, this focus is intended to boost PERA’s investment performance and contribute to its sustainability.
Managing assets internally: PERA staff manage more than 60 percent of total fund assets internally, at a cost of less than 0.06 percent of those assets. Managing public equity and public fixed income investments in-house saves an estimated $45 million per year over the expected cost of outsourcing to other investment managers. PERA also selectively partners with external experts who add value and help PERA to earn better risk-adjusted returns at lower overall costs. Whenever possible, PERA negotiates with those external partners for lower management fees as well.
Unbundling equity research and transaction costs: As an institutional investor, PERA is also concerned with research and transaction costs, which have implications for large and small investors alike. As discussed in previous PERA on the Issues posts, staff have repeatedly called for increased pricing transparency through clear guidance that would allow U.S. investors to pay directly for research, rather than receiving research as part of a bundle of services paid for by equity trading commissions. This is one part of PERA’s ongoing advocacy for fair markets and fair costs.
Lowering 401(k), 457, and Defined Contribution plan fees: For members who choose to participate in PERA’s 401(k) plan, the all-in costs have dropped by 68 percent since 2011. This includes a reduction of the administration fees from 0.50 percent of assets in 1995 to 0.03 percent of assets in 2018, which also extends to PERA’s 457 and Defined Contribution plans. These lower investment costs should encourage PERA members to participate by allowing them to retain more of their retirement savings, while increasing efficient plan management.
Protecting members’ assets by watching costs is a critical component of PERA’s investment stewardship philosophy. More on PERA’s four-part stewardship approach is available here.