The PERA Board of Trustees has adopted new asset allocation targets following a year-long study into PERA’s investment portfolio and strategy.

The new allocation includes tweaks to several asset classes in an effort to reduce volatility in the portfolio while providing the potential for higher returns in the future.

Background

Every four or five years, the PERA Board conducts what is known as an asset/liability study to examine the PERA Defined Benefit Plan portfolio and ensure the mix of stocks, bonds, and other investments aligns with PERA’s funding goals. That process last took place in 2019, after which the Board adopted the current strategic asset allocation.

The most recent asset/liability study began in September 2023, and over the past year, PERA’s investment staff have been working with the Board’s Defined Benefit investment consultant, Aon, to carry out the analysis. After examining various factors, such as the fund’s risk tolerance, market conditions, and projections for future returns, Aon presented its recommendations at the Board’s September meeting.

What’s changing

The new strategic asset allocation is expected to provide incrementally greater diversification in the portfolio by reducing the percentage allotted to Global Equity (i.e., stocks) and investing more in private asset classes such as Private Equity and Real Estate with the goal to slightly lower risk and add potential for higher returns over time for the entire investment portfolio.

The table below shows PERA’s current long-term target allocation and the new targets the Board adopted.

Asset Class	Current Target	New Target
Global Equity	54.0%	51.0%
Fixed Income	23.0%	23.0%
Private Equity	8.5%	10.0%
Real Estate	8.5%	10.0%
Alternatives	6.0%	6.0%

Within the Alternatives asset class, the new policy increases allocations to real assets and private debt while reducing allocations to hedge funds and opportunistic investments.

By making these changes, the Board is aiming to strengthen PERA’s investment portfolio and ensure PERA remains on track to meet its goal of full funding.

“Asset allocation is the single largest driver of investment returns, and I appreciate the attention and care the Board has given to analyzing and updating our strategic asset allocation,” said Chief Investment Officer/Chief Operating Officer Amy C. McGarrity. “These new long-term targets are expected to help reduce risk in the portfolio and ensure we can continue to provide the lifetime retirement income that so many of Colorado’s public employees rely on.”

The Board also reaffirmed its long-term expected rate of return of 7.25%.

Asset Classes Explained: Global Equity | Fixed Income | Private Equity | Real Estate | Alternatives

What’s next

With the Board’s adoption of a new strategic asset allocation, it’s up to PERA’s investment staff to begin the work of implementing the updated strategy. Aon expects the portfolio to reach its new long-term targets within two to three years.