Retirement insights from a Colorado PERA perspective

Inside Colorado PERA

PERA’s Investment Objective: Ensuring Retirement Security

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Investing requires an objective, just like charting a course on a map requires having a destination. A trip to Peru is not a successful trip if the objective had been Norway. Both destinations are viable options when you’re planning a trip, but they can’t both be the objective when you leave home: You can’t travel north and south at the same time. Investment objectives are no different.

In January 2019, Colorado PERA’s Board of Trustees stated that “PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants.” That objective not only includes ensuring a secure retirement for the 82-year-old retired teacher who relies on PERA today, but also for the 25-year-old CDOT employee who doesn’t plan to retire until 2059.

To reach that overall objective, the Board stated that “PERA seeks to maximize long-term risk-adjusted investment returns while incorporating the fund’s liability characteristics.” In other words, PERA must make investments that, altogether, are most likely to provide security for more than 600,000 members.

The Board’s statement continued, “A central component in managing investment risk is diversification”. This allows an investor, like PERA, to spread out risk (as in “don’t put all your eggs in one basket”) by looking into the widest number of possible investment opportunities.

The Divestment Dilemma

In recent years, outside organizations have suggested that institutional investors like PERA adopt a new objective: Use pension fund dollars to make political or social statements. Over time, these divestment requests have included industries such as mining, fossil fuels, meat, tobacco, guns, and more.

Each divestment proponent seeks to do good as they define the term. And, in September, PERA staff met with one such group to hear their concerns. But making divestment an objective is problematic. Issues PERA’s Board has raised include:

  • Limiting the investment opportunities available to PERA could lead to a less diversified portfolio. By accepting potentially more risk or smaller returns, this objective could conflict with PERA’s primary objective to provide retirement security to its members.
  • Calls for divestment span many issues. Over time, proponents have identified various industries as candidates for divestment. Deciding which of these to act on would be extremely problematic given PERA’s investment objectives. PERA invests in companies, not causes. Becoming an arbiter on issues like meat consumption or guns is not within PERA’s purview.
  • Divesting PERA’s existing holdings within an industry could lead to unintended outcomes. For example, PERA invests for the long term. Some investments might not be profitable today, but are expected to be in months or years down the line. Abruptly selling shares of a company, perhaps at a loss, would be in direct conflict with PERA’s main objective.

An Alternate Reality

Calls for divestment are gaining momentum. Proponents suggest that divesting from certain industries or companies will better enable PERA to achieve its long-term investment objective.

To demonstrate this, some organizations have proposed the following thought experiment: What if PERA had divested from a certain industry in the past and reinvested those dollars elsewhere? These thought experiments suggest PERA could have made millions or billions of dollars by investing differently in the past.

This type of thought experiment implies PERA could have made investment decisions years ago based on information only available today. That model does not reflect reality. While it’s always possible to find one company or industry that did better than another in hindsight, that isn’t a helpful guide when investing in the real world, where the future is unknown.

Investing for the Future

Finally, PERA does take into account that environmental, social, and governance factors can indeed affect a company’s long-term profitability. The ability to adapt to a changing world, do business in a sustainable way, and use resources in a way that ensures long-term success can be indicative of a quality company worth investing in.

Factors like these are part of a mosaic of factors PERA’s investment team considers when making any investment decision. Making investing decisions based on multiple pertinent data points instead of singling out one factor and ignoring the rest is the most responsible way forward for PERA and its members.

DiversificationA strategy of reducing exposure to risk by combining a wide variety of investments within a portfolio.

Comments

  1. Marty says:

    I appreciate and agree with your decision on divestments. We, as individuals, can choose to support or not support those companies whose practices/policies we do or do not agree with. We need PERA to continue
    to stay focused on long-term goals and the security of our pension funds.

  2. Paul Larson says:

    Thank you for the clarification and information on investment strategies.
    PERA has a fiduciary responsibility and as such ,should not change investments based on small interest groups political demands. Stay firm and away from political campaigns.
    Please continue making investments that provide the greatest outcomes.

    • Frances Frain says:

      Mr. Larson, Please look to see where PERA has lost a billion$ because of their investment in coal for the last 10 years. Is that fulfilling their fiduciary responsibility? We are not making a political demand. We are asking PERA to fulfill their fiduciary duty.

  3. John Brzeinski says:

    I too strongly support PERA’S current policy regarding divestment.Problem is one group’s divestment agenda is typically politically based and in direct conflict with another group’s political agenda.

  4. Roberta Erickson says:

    I am concerned about PERA staying too much in fossil fuels investements when many of us wanted you to “go green”…wind and sun investements. The national financial indicates we have lost a great deal of money with fossil fuels
    I want to express my disappointment in that! You must change! Thank you!

    • Tim Martin says:

      The “go green” controversy/debate is a separate issue from our retirement security. I agree with the goal to minimizing dependency on fossil fuels BUT we need a separate platform for supporting it, like the federal government. PERA Board is correct in its objectives with respect to “divesting”.

  5. Marianne says:

    I certainly agree with the comments already written here. Our political climate is toxic and the last thing we need is to honor the wishes of one group of individuals , dishonoring the wishes of another plus possibly losing money for all. Thanks for the level heads who think clearly and without political bias. We count on you to do the right thing.

    • Frances Frain says:

      Do you honestly believe that PERA has done the “right thing” when more than $1 billion has been lost in the last 10 years because of a loss in value of coal?
      Don’t members of PERA have the right to question what is happening to their retirement funds. It seems that we all need to help protect each other’s benefits.

  6. Tim Stoecker says:

    PERA has a very bad balance sheet now. Let’s address that for current and future beneficiaries, or we won’t be able to contribute on a personal basis to address those issues we feel are pressing. And, the makeup of PERA is politically very mixed.

  7. Linda Y says:

    PERA should not get involved with divestments. Continue doing what you’ve been doing for
    so many years to keep our retirement incomes solvent. I agree to “stay firm and away from political campaigns”. Keep up the good work!

  8. Ron Ebert says:

    Since retirement in 1997 the funded ratio has gone down hill. What was it in 2003 that it was 105% funded? Last year it seems a great deal of the fund was lost. People like me that were on call 24 hour 7 day a week, that gave our all to the State for many years have nothing else but PERA. To my way of thinking now is not the time to be politically correct with what we depend on so much and throw us overboard for an ideology. I don’t agree with Richard Lamm’s statement that “Old people have a duty to die and get out of the way”.

  9. John Edward Hawk says:

    I am deply concerned by the $ 2 Billion loss in value to the teachers retirement fund last year! Was this accurately reported in the Denver Post? If this is true this is not acceptable. Where was the money invested and who made such negatively performing investments? What per centage of the fund is invested in the stock marketand what per cent is invested in more secure bonds? If the median age of recipients is 70 or older, then only 30 per cent should be in risky stocks, unless stops are put on the stocks to limit losses when stocks drop in value. At only a 57 % funded level we are in very dangerous territory.

    • PERA On The Issues says:

      Hi John,

      Thanks for your questions.

      You can learn more about PERA’s asset class mix and current allocation here. PERA invests on behalf of all 600,000 members, which include not only current retirees but also people still currently working, some of whom will retire in a few years, some of whom will be depending on PERA decades from now.

      For most investors, 2018 was a difficult year. For example, global equities declined 9.4 percent in 2018 (as measured by the MSCI ACWI). For the year ending December 31, 2018, PERA’s investment portfolio returned a negative 3.5 percent, net of fees (PERA’s benchmark was negative 3.6 percent). PERA’s ten-year average is 8.8 percent.

  10. Todd Malmsbury says:

    We strongly support PERA’s level-headed approach to longterm investing. It would be irresponsible to base investment decisions on a political cause or ideology. PERA does in fact represent the greater good by assuring that retirees have a stable income. We are fortunate to have PERA as our retirement program.

  11. Wendall Johnson says:

    Please avoid political correctness in making investment decisions.

  12. Lee Patton says:

    I know that stocks took a dive at the end of 2018, leaving the ledgers looking even more underfunded. And so the already meagre “raise” (below cost of living increases) for retirees was postponed again.

    What I don’t understand is why that brief year-end stock dive threw the whole portfolio into permanent turmoil and decline, when in fact stocks recovered quickly in early 2019 and are now in record-high territory. Why aren’t these gains triggering better averages for PERA’s ledgers now?

    • Marti S says:

      Agree with Lee. Also agree that PERA should stay OUT of political issues when investing–too toxic an environment and impossible to please every group out there. But, PERA seems intent to spread underfunding to “all groups” INCLUDING those already retired who were counting on increases and may only have PERA as a primary source of income. When you work 40 years under PERA for 100% HASalary, you’re ready to retire, generally. And, while you might in some cases be able to work after PERA retirement, generally if we live long enough, a time comes when physically, or mentally, or both, working is no longer feasible, and yet PERA wants to balance its underfunding on the backs of retirees–the LAST group that should be responsible for this. THIS is NOT “Ensuring Retirement Security” for retirees!!

  13. Bill says:

    Perhaps PERA should be more conservative?

    Recently PERA lost $30 billion dollars!!!!!!!!! out of $70 billion dollars?
    My understanding is that, in 2012, PERA had essentially 100% backing for retiree obligations. Now, after recent mismanagement, PERA has only 60% backing for retiree obligations.
    PERA please be more conservative in investing!!!!

  14. Bill says:

    I agree with Wendall Johnson. “Please avoid political correctness in making investment decisions.”

    Recently PERA lost $30 billion dollars!!!!!!!!! out of $70 billion dollars?
    My understanding is that, in 2012, PERA had essentially 100% backing for retiree obligations. Now, after recent mismanagement, PERA has only 60% backing for retiree obligations.

    An independent firm has given the State of Colorado a “D” for finances; … perhaps because the State has now agreed to pay $250 million per year into PERA to make up for the shortfall that resulted from the $30 BILLION dollar loss?

    please reference the Colorado Springs Business Journal

  15. Bill says:

    Perhaps PERA should now reduce its investment in equities and stocks?
    Change investment percentage to increase (majority) in fixed income and reduce (limit) investment in equities and stocks.
    Stocks are at an all-time high for over 10 yrs; and likely to go down at some point.
    PERA please change your investment strategy to be more conservative … we cannot stand another $30 billion dollar loss!!!

  16. Lori says:

    I just cannot believe my retirement fund has no problem with killing the planet to make me money. 600,000 PERA members contributing to the demise of their own children and grandchildren. All of you ought to be ashamed. At least set an example.

  17. Lori says:

    I just cannot believe my retirement fund has no problem with killing the planet to make me money through investments in oil and gas. 600,000 PERA members contributing to the demise of their own children and grandchildren. All of you ought to be ashamed. At least set an example. Climate change is not a political issue – divest in fossil fuels and invest in renewable resources.

  18. Donna Bonetti says:

    Please divest from the money losing fossil fuel investments. Our future is in clean renewable energy and I want my account to reflect that and grow in a way that will not damage the future for us and future generations.

  19. Lola Wilcox says:

    “Follow the money” is a useful cliche. We have a fossil fuel industry that has not hesitated to hide the fact that their business is changing the planet. Instead of seeking a future in new fuel sources, new business models, of leading the way to a clean and healthy future for all, these companies demand we continue to support their dying business model. I am not interested in supporting them in any way while they buy time to drill the last well, frack the last county… I don’t think of myself as taking a political position but an economic one. Even the car industry has begun to explore … in the face of dramatic technological changes. Let’s divest, and follow the money into a sun, wind, wave based future.

  20. Celeste Rossmiller says:

    I am interested to see, in your last paragraph, reference to “ESG” (environmental, social, and governance”) issues as part of PERA’s investment decisions. Part of the way that I earned my PERA retirement was teaching business ethics at a public university for many years–and part of our curriculum definitely focused strongly on the ESG elements of moving business decisions forward. As recent studies show, PERA could have gained considerably more funds by practicing divestment in fossil fuels–which are, after all, from the era of dinosaurs, and now are clearly becoming “dinosaurs” themselves. I urgently vote that PERA face the music and divest now, using precisely the ESG principles–and the “Precautionary Principle”–to redirect funds into life-giving streams of income.

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