Colorado PERA’s Board of Trustees met on Friday, March 20, in historic fashion. Board members called in. Those in PERA’s Denver building sat noticeably far away from one another. All this in response to the COVID-19 health crisis we all face. Aside from the unfamiliar seating arrangement, however, this scheduled meeting went on as planned.

At this meeting, the Board did not take major action on any issue. They did receive numerous updates about PERA operations and updated policies under routine review.

Executive Director’s Report

Executive Director Ron Baker informed the Board about PERA’s response to the global pandemic. “Work at the building is vastly reduced, but we’ve been able to maintain a high level of service via remote working,” he said.

Baker said that PERA is prepared to continue delivering retirement benefits to PERA’s benefit recipients. Services members rely on, including PERA’s customer service call center, field education services, and individual counseling sessions, are all still available online and over the phone.

Baker also noted that, amid the upheaval caused by COVID-19, progress toward achieving long-term strategic goals continues to be made. Examples include expanding the use of web-based counseling and launching organization-wide communications initiatives to better engage new PERA members and deliver information to all members in a more streamlined, accessible way.

Investment Updates

Against a backdrop of high global market volatility, Amy C. McGarrity, PERA’s Chief Investment Officer, delivered an update of PERA’s investment operations.

McGarrity noted the sharp increase in volatility across global markets. In any given short-term period, the portfolio may perform better or worse than long-term expectations. Instead of trying to predict what the markets will do from day to day, the PERA portfolio is positioned to deliver the expected long-term rate-of-return assumption (7.25 percent) over the long term (30+ years).

She said that the investment team “continues to perform at a high level” and that many have experience from the similarly volatile 2008-09, which gives them valuable insight as they work to achieve their investment goals.

Other investment activities since the Board last met include:

• The addition of the PERAdvantage 2065 Fund to the target date funds available to members who participate in PERAPlus. Target date funds allow people to invest in a well-diversified portfolio, taking on risk appropriate for their age, with a single click. This newest fund is designed for people who intend to retire on or around the year 2065.
• PERA’s Fixed Income asset class (DB Plan) is now entirely internally managed. PERA identified this as an opportunity to expand its proven ability to deliver compelling long-term returns at a low cost.
• Investment Operations established a business continuity plan to ensure continued management of PERA’s portfolio if PERA systems were unavailable.

Active Risk Policy

PERA’s Board sets multiple policies related to investment activities, including PERA’s Active Risk Policy. At the meeting, Aon delivered a presentation on this topic. At the end of the presentation, the Board made minor policy adjustments.

Active risk is the amount of risk a portfolio has when measured against its benchmark. For example, an active risk of 1.0 percent means that in two out of every three years, the return can be expected to be within 1.0 percent of the benchmark. In nine out of every ten years, the return can be expected to be within 2.0 percent of the benchmark.

What makes this particular measurement notable? Having a policy that establishes a cap on active risk puts a measurable limit on the amount of risk taking that can occur at any given time. It’s important to note that the goal is not to eliminate all risk. Taking a certain amount of risk is important as risk corresponds to potential investment returns. According to Aon’s presentation, this window of allowable risk levels gives investment staff the flexibility to “take advantage of opportunities when they present themselves.”

Aon’s report stated that PERA’s “[global equities] active risk range has historically been between 40 and 120 [basis points], well below the 225 [basis points] allowable maximum” and that “PERA’s active risk profile has been consistently more conservative than peers.”

Fixed income active risk “has ranged between 20 and 50 [basis points]”, also well below the allowable maximum and “relatively more conservative” than peers.

At the end of the presentation, the Board made minor modifications to PERA’s active risk policy. Among other changes, risk levels will be calculated over a five-year period instead of three, and the process for PERA staff to report to the Board if risk levels exceed the limit at the end of any fiscal quarter was formalized. The Board committed to deepening their knowledge of active risk with annual educational sessions on the topic.