Colorado PERA’s asset management focuses on maximizing risk-adjusted investment performance from the broad universe of investable assets. All PERA investment decisions are governed by a Board-adopted investment philosophy and set of beliefs, including the Private Equity asset class. (See PERA’s Statement of Investment Policy for details.)

PERA differentiates its Investment Department by specific asset classes: Equities, Fixed Income, Private Equity, Opportunity Fund, and Real Estate (additional information on asset allocation can be found in a prior PERA on the Issues post, “Asset Liability Study Plots Course for Future”).

The private equity program’s objective is to generate investment returns in excess of the publicly traded markets as well as to deliver investment returns that rank highly against the private market opportunity set. Currently, the Board’s target allocation range to private equity is between 5 and 12 percent, with assets at the end of 2016 at 8.4 percent ($3.7 billion) of the total $44 billion portfolio.

PERA was an early institutional investor in privately held (non-publicly traded) companies. The first private equity investment (formerly called Alternative Investments) PERA made was in 1982. Over the last 30 years, PERA has been able to develop relationships with the key investors and top-performing funds in the private equity space. Since inception, the private equity asset class has had an annualized net internal rate of return (IRR) of 10.4 percent as of December 31, 2016.

For a quick look at PERA’s private equity performance by the numbers, click here.

Unlike public equities (stocks) and fixed income (bonds) where the price of the investment is publicly known, private equities are not traded on a public exchange. In addition, much of the information on the underlying investments is generally not publicly disseminated. In fact Colorado state law limits the amount of information on PERA’s private equity investments that can be disclosed. In order to promote transparency in PERA’s private equity investments within the limits of the law, PERA posts a summary of private equity investments after these investments are audited each year.

The challenge for investors like PERA is balancing public access to private information with the need to be good stewards on behalf of the PERA membership, all the while upholding contractual obligations that allow PERA to maintain constructive relationships with investment partners. PERA uses a two-tiered approach, providing a summary of the investments in the portfolio on an annual basis which is available to the public (see above), in addition to providing more detailed information to the PERA Board to assist in their oversight of the program. The PERA Board receives information on each private equity investment made. This information, while not publicly available, allows Trustees to have detailed information on private equity investments. Disclosures made to the Board by staff include a fund overview, investment strategy, a summary of key investment personnel, historical investment performance, and fees. In addition, Trustees may request additional information, as available.

As the private equity investment asset class has evolved, so has PERA’s approach. PERA investment staff recognized that the asset class broadly was growing and that more investors (and their assets) were being attracted to the asset class due to its higher expected returns. With the growth of the private equity asset class, it became increasingly clear that standardized, detailed data on partnership terms would be helpful to review on an ongoing basis. To that end, PERA was an early supporter of the Institutional Limited Partner Association (ILPA), an organization created “to enhance and improve investor reporting and transparency.”

Working with other institutional investors, members of the private equity community, and through active participation in the ILPA, PERA has promoted increased disclosures and transparency of private equity investments. Careful consideration of the value to access private equity investment opportunities, as well as being prudent stewards of retirement assets, is balanced by PERA’s two-tiered approach to disclosing private equity investment information to the Board and public.

For more information on the PERA investment program see these PERA on the Issues posts:

What is a Policy Benchmark?

Asset Class In-Depth: Fixed Income

Asset Class In-Depth: Equities

A Brief Look at PERA’s Opportunity Fund