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.
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 allocationThe amount of a fund allocated to certain asset types (e.g. public equities, fixed income, private assets).Asset classA category of investments that share certain characteristics and exhibit similar patterns of return.Asset classA category of investments that share certain characteristics and exhibit similar patterns of return.Asset classA category of investments that share certain characteristics and exhibit similar patterns of return.