How should PERA invest the roughly $50 billion PERA portfolio?
That question was answered on November 15, when PERA’s Board of Trustees approved updated asset allocation guidelines. Asset allocation is the term used to describe how the total amount of dollars invested are divided among various investment types, also known as asset classes.
The Board does not make individual investment decisions—PERA’s investment team fulfills that role. Instead, the Board sets the course for PERA’s investment strategy, broadly speaking. This is not a one-time decision. The Board usually reviews and approves asset allocation needs every three to five years.
The Board first sought a thorough review of its options. In particular, they weighed how different proposed options would contribute to the overall goal of becoming fully funded in 30 years. They considered risk, return, and the cost of managing investments, among other factors.
The Board worked with Aon, an outside firm, on this project. Aon compiled a report that included multiple options for the Board to consider. (Read prior reporting on this process here. The full report can be viewed in full here.)
The Board sets two important guidelines for each asset class. The first is a long-term target, which is defined by a specific percentage. The second is a target range, which includes a minimum and maximum percentage.
The target range gives the investment team increased flexibility. For example, if one asset class is performing better than expected relative to other asset classes, it might grow beyond the long-term target. The target range’s higher ceiling allows that asset class to continue to grow without unnecessarily selling assets, which incurs additional costs.
|PERA’s asset allocation, as approved by the Board|
|Long-Term Target||Target Range|
*Note: The asset class currently named Opportunity Fund was renamed Alternatives, effective 1/1/2020.
Choosing an asset allocation is a decision that individuals and institutional investors alike must make. But this comparison has limits. Individuals investing for their own retirement have a closed time frame. They need income in retirement, but that need ends upon death. PERA, on the other hand, operates in an open-ended environment. It needs to last in perpetuity. When the Board sets the asset allocation, they seek to maximize long-term returns, meeting the retirement security needs of all 600,000 Colorado PERA members
For more information about PERA’s investment strategy and performance history, visit the investments page of copera.org or watch the video below.