Every investor, whether an individual or an organization like PERA, makes investment decisions based on their goals or objectives.
PERA’s investment goals and objectives are listed in the investment policy adopted by the Board. It reads, in part: “The function of PERA is to provide present and future retirement or survivor benefits for its members. This objective requires the prudent assumption of investment risk in seeking to maximize long-term investment returns…”
That statement lays out both the goal – providing benefits to members in perpetuity – as well as the way it will achieve this goal: by maximizing long-term risk-adjusted investment returns.
Investing: The Big Picture
The world of investment opportunities is vast. It’s often subdivided into asset classes, or groups of distinct types of investments. These include publicly traded stocks, bonds, and real estate. Each asset class has unique features and risks associated with it.
PERA’s Board ultimately determines how much PERA invests in each asset class They do this through their asset allocation policy. This policy lays out a target for each asset class – a percentage of the total funds PERA invests that should be dedicated to each asset class Because the value of every investment can fluctuate, it’s impossible to “hit” the target in practice. So, the Board also provides a minimum and maximum percentage that each asset class can hold.
The Board regularly reviews and updates its asset allocation policy. Read more about the last time the Board did this, in late 2019, in this PERA On The Issues story.
Within that framework, PERA’s investment team makes its investment decisions.
Investing Responsibly
From time to time, outside groups push to mandate PERA to take up additional goals and objectives. These movements often advocate for the use of divestment – or selling off investments – in an effort to achieve policy goals unrelated to retirement security.
Regardless of a person’s attitude toward any particular policy goal, divestment is not an effective way to achieve that goal. Previous PERA On The Issues stories like this one have explored some of the ways in which divestment is ineffective.
The PERA Board’s Statement on divestment explains their position in full, but states that “divestment is costly and limits PERA’s ability to effectively seek the best risk-adjusted returns to secure the retirement benefits of public servants.”
The Benefits of Engagement
PERA maintains its focus on being a responsible, engaged investor. What does this look like?
- Every shareholder of a company owns a piece of that company. As a result, they are able to voice their opinions on some business decisions through voting. PERA outlines its approach to dozens of issues it reviews when voting in its Proxy Voting Policy, which the Board last updated in early 2021.
- When casting these shareholder votes PERA considers many issues, including sustainability issues that could have a financial impact on a company.
- There are many sustainability factors that could have a financial impact on PERA’s investments. PERA’s most recent Stewardship Report lists a few: carbon emissions, labor rights, natural resource utility, executive oversight, animal welfare, corporate culture, and social impact. As the report states, “When Stewardship efforts impact a firm’s financial success, they become financially meaningful to stakeholders.”
- PERA advocates for companies to reliably inform shareholders about any climate-related risks and opportunities that could have a financial impact on the company. PERA has voted in support of 91 environmental proposals over the past three years.
- With this information, investors are able to make better-informed decisions about how they invest. In PERA’s case, this means making investment decisions that align with PERA’s goals and objectives. Companies that adopt sustainable business practices may signal quality and longevity, which are important features for a long-term investor like PERA.
- PERA staff actively engage with portfolio companies, legislators, regulators, standard setting bodies, and other institutional investors about matters that can impact PERA’s investments and the integrity of global markets.
Investing for Members
The world has faced a variety of critical issues since PERA’s founding in 1931. Maintaining focus on the primary goal has served PERA and its members well. The following statement from the Board’s Statement on divestment shows that they intend to maintain that focus well into the future: “PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants.”
Asset classesA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.StewardshipThe practice of overseeing or managing something entrusted to one’s care. PERA’s approach to investment stewardship is focused on ensuring the financial sustainability of the fund that pays benefits to retirees and beneficiaries.StewardshipThe practice of overseeing or managing something entrusted to one’s care. PERA’s approach to investment stewardship is focused on ensuring the financial sustainability of the fund that pays benefits to retirees and beneficiaries.DivestmentThe act of selling one’s investments in a particular company or sector, often for philosophical or political reasons.DivestmentThe act of selling one’s investments in a particular company or sector, often for philosophical or political reasons.DivestmentThe act of selling one’s investments in a particular company or sector, often for philosophical or political reasons.Asset allocationAn investor’s mix of stocks, bonds, and other investments. PERA’s strategic asset allocation is set by the PERA Board of Trustees.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.Asset classA category of similar investments. Common asset classes include global equity (such as publicly traded stocks), real estate, and cash.
Thank you for continuing the policy of maximizing the long term return of the PERA funds. That is responsible investing.
Agree whole heartedly. The first ones to CRY if PERA is unable to meet the desired financial outcomes will be the same ones who would prioritize their social agenda of divesting above sound fiscal strategy. In addition, not wise to follow the “pet” social selection of the day as it is often the next “bust” of tomorrow. I commend PERA for staying the course with sound long-term strategies that have produced results for today.
Complete fossil fuel industry divestment is what I want as a PERA member. Thank you.
We need the fossil fuel industry Keep our energy dominance in the world and keep jobs for many people.
What concerns me is reading language from the new world order agenda within PERA’s own justification of our goals twisted into the “singular purpose of ensuring the retirement security of Colorado’s current and former public servants”.
When I saw the title of the article “Issue Spotlight: Responsible Investing” I assumed that it would be about how PERA makes ethical decisions to invest members’ money responsibly. But what I have learned from reading it is that the PERA board has decided there is no place for ethics in their investment strategy.
In my opinion the article actually describes how the PERA investment strategy is consciously irresponsible.
How about formally consulting members on whether to divest from certain industries, and reviewing/revising the investment policy if necessary?
PERA needs the flexibility to invest in a diverse mix of industries in order to be our fiduciary. We need to continue to give them access to all the tools necessary.
My first reaction to this article is that it intends to rationalize why PERA is choosing to not have to follow ethical investment choices. I don’t remember being actively surveyed by an independent source on whether this is an acceptable choice or whether it would be more favorable to me for PERA to move to an ethical standard. We must be the change we want to see.
I strongly object to your characterization of divestment issues in this article. It is IRRESPONSIBLE for PERA to hold on to fossil fuel investments. In the coming decades, these investments will include billions of dollars in stranded assets, i.e., fossil fuels that cannot be burned if the planet is to avoid climate catastrophe. I urge you to join the growing number of institutions that are divesting NOW to protect their beneficiaries and the planet.
I was disappointed to see the article on responsible investing had absolutely no information on progressive, humane national and global investments. In fact, the article dismissed the very idea.
There’s more to “responsibility” than making sure PERA gets its returns. We should not be investing in businesses that actively harm human beings and the natural environment. I remember when PERA was on the wrong side of divesting from South Africa’s apartheid system. That forced PERA stakeholders to participate in evil.
I don’t believe it is PERA’s job to kill fossil fuels. That is the job of elected lawmakers. I don’t want my retirement income put at risk, because investment decisions are based on political objectives.