Retirement insights from a Colorado PERA perspective

Inside Colorado PERA

PERA Board Discusses Investments During June Meeting

NOTICE JUNE 2020: AVOID REUSING PER MADALYN'S ADVICE
NOTICE JUNE 2020: AVOID REUSING PER MADALYN’S ADVICE NOTICE JUNE 2020: AVOID REUSING PER MADALYN'S ADVICE

Colorado PERA’s Board of Trustees met on June 19. At the meeting, the Board approved the release of PERA’s 2019 Comprehensive Annual Financial Report. This report, which is covered at length in another story on PERA On The Issues, includes information on PERA’s investment returns for the 2019 calendar year. The total fund’s investment portfolio returned 20.3 percent, net-of-fees.

The Board covered a number of other agenda items, including information about legislation, the PERA Board election, and updates on projects currently underway within the organization.

Top of mind for many, however, was the investment landscape so far in 2020. While the CAFR mentioned above contains a detailed, audited account of 2019, it does not contain information past December 31, 2019. Investment returns for 2020 will be released in 2021. However, the Board did receive investment reports about broad trends to consider.

PERA’s investment staff monitors market trends, and the Board receives an outside perspective on PERA’s investments with help from its investment consulting teams at Aon, a leading global professional services firm. Laura Flaum, a senior consultant at Aon, shared with the Board her view on the year thus far: “We do expect to see the PERA portfolio make up some of the losses that we [saw in the first quarter] given the portfolio’s exposure to global equities,” she said. Global equities make up just over half of PERA’s asset allocation.

Flaum added that PERA’s second-largest asset class, fixed income, has played an important role so far in 2020. Fixed income, which makes up about a quarter of PERA’s overall asset allocation, consists of bonds issued by both companies and governments. Flaum explained that fixed income serves as downside protection and a risk mitigation tool during market downturns.

During the volatile markets in the early part of the year, Flaum said that fixed income “did perform as it was intended to, and this really illustrates the benefits to having a diversified portfolio.”

The Importance of Staying the Course

PERA’s Chief Investment Officer, Amy C. McGarrity, spoke to the Board about PERA’s investment strategy during volatile times. “There’s no shortage of people with opinions on where the markets are going in the near term,” she said. “But, in my opinion, market timing is extremely difficult.”

McGarrity briefly shared an example to illustrate her point. If you invested $10,000 in the S&P 500 on January 1, 2000, and left your money invested for the entire 20 years, your portfolio would have grown to $32,192 at the end of 2019.

But let’s say you miss just the five best days during those two decades. Your portfolio would be worth $21,359 today—48 percent smaller compared to those who were invested the entire time.

And, if you missed the 20 best days during that 7,305-day span, your initial $10,000 investment would be worth $10,145—virtually unchanged.

“The key, in my opinion, is to remain invested in markets,” McGarrity said, “because it’s very difficult to predict where it’s going in the near term.”

One way PERA’s investment team responded to volatility was to keep an eye on PERA’s asset allocation, ensuring that the overall portfolio stayed within the Board’s guidelines as values changed quickly. McGarrity said that doing so is crucial to meeting long-term objectives. “We think over time that the asset allocation that [the Board has established] will achieve the results that we are expecting,” she said.

CafrPERA's Comprehensive Annual Financial Report, released annually in June, contains audited information about PERA's investment program and operationsVolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.

Comments

  1. Rick says:

    Since the world is changing, have you considered investing in tech sector ETF’s that will be disruptors and relevant in the future e.g. Investco’s QQQ?

    • PERA On The Issues says:

      Hi Rick,
      PERA invests in many of the companies that make up the fund you mentioned. For example, the top holdings in QQQ are Microsoft, Apple, Amazon, and Alphabet. At the end of 2018, PERA’s top equity holdings were Microsoft, Amazon, Apple, and Alphabet.

  2. John Odenheimer says:

    As of October 2019, PERA held approximately 21,232 shares of GEO Group with a market value of $354,787 which represented an extremely small portion of PERA’s total assets. I urge PERA to consider that GEO Group should no longer be part, albeit small, of its portfolio. It’s not that GEO Group isn’t a profitable investment; the issue is that investing in GEO Group is not socially responsible or publicly sensitive. I understand GEO Group operates in a criminal justice continuum with services delivering rehabilitative programming across the country. However, PERA needs to be cognizant of public perception and in the eyes of the public, GEO Group’s operation of the ICE detention facility in Aurora, Colorado has been negative. Like it or not, in Colorado the GEO Group is connected with ICE. PERA does not need the kind of criticism that follows the media’s accounts of the ongoing practices within the ICE detention facility in Aurora. PERA needs the public’s approval. I urge PERA to divest itself of all holdings in GEO Group. Surely the investment team at PERA can replace this small percentage of its holdings with a more suitable and socially sensitive investment. Thank you.

    • John Goehl says:

      I will second Mr. Odenheimer’s statement. I worked for a GEO Group facility in Canon City, Colorado and the company had an ill received reputation as being inhumane. The companies corporate approach and policies were oriented toward monetary profit over the well being of both clients and employees.

  3. Horace Lorck says:

    Market was strong 2020 but not even a 1% raise for retired PERA personage. Do we have to be fully invested or state will not allow raises to retirees.

  4. Barb Slobojan says:

    I would encourage PERA to explain how much it takes to recover from years of loss. It seems many think that if there is a good year it wipes away the negative, not understanding the long term nature of the program. Recipients need to be reminded that they receive their benefits in good and bad years, while most retirees with 401ks have to weather the downturns directly.

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