Retirement insights from a Colorado PERA perspective

A distant view shows a mountainous landscape with sloping peaks, green trees in the foreground, and a cloudy sky above.

We often receive questions from our members, lawmakers, and the general public who want to know: What does PERA invest in and how do staff manage the portfolio?



Every year since 2018, we’ve published the <a href="https://copera.org/investment-stewardship">Investment Stewardship Report</a> to answer those questions and provide transparency into why and how PERA invests on behalf of nearly 700,000 members.



PERA’s approach to stewardship is guided by four main practices:



<ul>
<li>We protect our members’ interests through cost-conscious investment management.</li>



<li>We integrate financially relevant factors into our investment decisions.</li>



<li>We advocate for robust capital markets and business practices.</li>



<li>We evaluate various exposures within our portfolios on an ongoing basis.</li>
</ul>



<h4 class="wp-block-heading">Protect</h4>


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Each person on PERA’s investment staff is an expert committed to serving our members’ financial longevity. We leverage that expertise to reduce the need to use outside investment managers, which saves money while adding value for our members.



As of Dec. 31, 2023, we managed approximately 60% of PERA’s Defined Benefit Plan assets in-house at a cost of about 0.05% of those assets. In the same year, internal management saved an estimated $65 million compared to the cost of externally managing those assets.



The PERA Board and staff also work to lower fees in the PERAPlus 401(k)/457 and PERA Defined Contribution Plans. For example, since 2011, we’ve been able to reduce the all-in costs for members to participate in the 401(k) plan by 82%. Lower fees mean participating members can save more money toward their individual retirement goals.



RELATED: <a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-global-equity" target="_blank" rel="noreferrer noopener">Asset Classes Explained</a>



<h4 class="wp-block-heading">Integrate</h4>


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We invest for one purpose: To provide retirement income for our members. To that end, we consider various economic and business factors in our investment decisions with a focus on long-term financial results.



PERA’s integrative approach considers many aspects of businesses and markets that can have a financial impact on our investments. Those aspects may include factors that can be labeled as environmental, social, or governance-related (ESG). However, PERA does not have any ESG-themed mandates, nor do we screen our investments on specific ESG criteria when deciding whether to include them in the portfolio.



In 2023, the Colorado General Assembly passed Senate Bill 016, which requires PERA to publicly report on how we consider climate-related risks in our investments and operations. In response, we’ve augmented the 2024 Investment Stewardship Report with new insights into how we consider both risks and opportunities related to climate change.



RELATED: <a href="https://copera.org/pera-on-the-issues/esg-making-sense-of-alphabet-soup" target="_blank" rel="noreferrer noopener">ESG: Making Sense of Alphabet Soup</a>


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<h4 class="wp-block-heading">Advocate</h4>



We promote fair and transparent markets by contributing our expertise to regulators and financial industry advisory boards in advocacy of best practices that serve long-term investor interests.



By engaging with portfolio management partners, public companies, and policymakers, we can encourage practices that are expected to be profitable over the long run, and with more transparency in the market, we can make better investment decisions on behalf of our members.



<h4 class="wp-block-heading">Evaluate</h4>


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The PERA Board and staff monitor the investment portfolio on an ongoing basis. Our priority remains financial performance and seeking the best long-term, risk-adjusted returns so we can provide retirement income for our members in perpetuity.



As of Dec. 31, 2023, the PERA Defined Benefit Plan portfolio earned a one-year return of 13.4%, and over the past 10 years, the portfolio has earned an annualized return of 7.8%. In the past three decades, the investments we have made on behalf of the PERA membership have earned $82 billion, strengthening the longevity of the Fund.



RELATED: <a href="https://copera.org/pera-on-the-issues/how-pera-prioritizes-financial-value-over-personal-or-political-values" target="_blank" rel="noreferrer noopener">How PERA Prioritizes Financial Value Over Personal or Political Values</a>



Chief Executive Officer/Executive Director Andrew Roth underscored the importance of investment stewardship in fulfilling PERA’s purpose: “By maintaining our commitment to sensible investment practices and long-term performance, we continue to work toward our mission of providing retirement security for our members while ensuring the financial sustainability of the fund,” Roth said.



Explore the <a href="https://copera.org/investment-stewardship-report-digital-snapshot/" target="_blank" rel="noreferrer noopener">Investment Stewardship Report Digital Snapshot</a> or download the <a href="https://copera.org/investment-stewardship-report" target="_blank" rel="noreferrer noopener">Investment Stewardship Report</a> to learn more.

Investment Stewardship Report Highlights How PERA Manages Plan Assets

PERA leaders hosted two live Town Halls on Wednesday, July 12 to provide an update on PERA and answer questions from members and retirees.



Interim Executive Director and Chief Investment Officer Amy C. McGarrity was joined by Chief Benefits Officer Patrick Lane and Chief Administrative Officer Jeremy Hill for both meetings.



They answered questions on a number of important topics, including annual benefit increases, Social Security, and PERA’s investment portfolio. Responses to some of those questions are summarized below, and full recordings of each Town Hall are available at <a href="https://copera.org/townhall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.



<h4 class="wp-block-heading">Why was the previous executive director’s employment contract terminated?</h4>



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“The decision was at the discretion of the PERA Board,” McGarrity said. “To reiterate, there was no criminal wrongdoing and no impact to retiree benefits. We are in the process of selecting an executive director. The first step is to select an executive search firm to assist with the recruitment of that next leader for PERA, and the Board has formed an ad hoc committee. Those ad hoc committee meetings are posted on <a href="https://copera.org/about/board-and-leadership" target="_blank" rel="noreferrer noopener">copera.org</a> and they’re streamed live for anyone who wishes to follow the process.”



<h4 class="wp-block-heading">Why aren’t annual benefit increases for retirees keeping up with inflation?</h4>



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“We recognize the challenges that this inflationary environment presents. We feel it as consumers but we know it is particularly important to our retired members,” Lane said. “As you know, the Annual Increase percentage is set in statute and it is not within the purview of the PERA Board or staff to make changes to the Annual Increase…the only way that could change is if the state legislature decided to change the law, which would in effect extend PERA’s 30-year window to full funding.”



<h4 class="wp-block-heading">Are PERA benefits in danger due to 2022’s negative investment returns?</h4>



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No, PERA benefits are not in danger. The investment portfolio is well-diversified and contains a wide array of assets so the portfolio can withstand different market environments, McGarrity said. While we were subject to the market downturn in 2022, we are also subject to positive market swings and have been able to take advantage of those markets in prior years and so far in 2023, McGarrity said.



In 2022, PERA paid $5.2 billion in retirement benefits to retirees and benefit recipients, so you can continue to count on PERA to provide retirement income throughout your life.



<h4 class="wp-block-heading">What is PERA doing about Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?</h4>



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“Social Security’s WEP and GPO are provisions within federal law and are therefore outside the scope of the PERA Board and staff to influence,” Lane said. “We encourage you to contact your members of the U.S. House and Senate to be heard on this issue.”



Bills to modify or repeal WEP and GPO are frequently introduced in Congress, and PERA On The Issues monitors and reports on those activities throughout the year. <a href="https://peraontheissues.com/an-update-on-2023-wep-gpo-legislation/" target="_blank" rel="noreferrer noopener">Click here</a> for our latest article on WEP/GPO reform efforts.



<h4 class="wp-block-heading">What is PERA doing to improve wait times to talk to Customer Service on the phone?</h4>



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“We have made a number of recent changes that have cut down on wait times in the call center,” Lane said. “We implemented a new caller verification process that makes the security process faster and shortens the length of calls. And we just migrated to a new phone system just within the last few weeks that allows us to better forecast call volumes throughout the day, throughout the month and throughout the year.”



He added: “We have seen service levels increase in recent months and we look forward to providing better service going forward.”



<h4 class="wp-block-heading">Does PERA inform its investments by accounting for social goals, such as diversity, equity and inclusion? If so, what does that look like?</h4>



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McGarrity explained that PERA’s primary goal is achieving the best risk-adjusted returns for PERA members and therefore PERA does not have any mandates related to environmental, social, or governance (ESG) or diversity, equity, and inclusion (DEI) outcomes. However, PERA staff will consider any financially relevant factors when making investment decisions.



“To the extent that a company’s long-term expected return may be influenced somehow by one of those factors in a financially material way, certainly we will consider it in our underlying due diligence of that investment and/or underwriting of that investment,” McGarrity said. “However, unless they are financially material factors or drivers of the expectations for long-term returns, they are not rising to the top of our considerations. So we are really focused on the factors that have an influence on long-term shareholder returns.”



<h4 class="wp-block-heading">How can members be sure PERA will be there for them when they retire?</h4>



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“I think the legislature has shown its commitment through the years to keeping PERA strong and enacting reforms several times in the past decade to ensure we are on a financially sustainable path. Most recently, Senate Bill 200 (enacted in 2018) puts us on a path to full funding by 2048,” McGarrity said. “The reforms are working and we’re committed to providing reliable income in retirement that our members cannot outlive.”



<h4 class="wp-block-heading">PERA mobile app</h4>



Hill also mentioned <a href="https://content.copera.org/pera-leaders-answer-member-questions-at-2023-town-halls/" target="_blank" rel="noreferrer noopener">PERA’s new mobile app</a>, which is now available in the App Store for iOS devices and Google Play Store for Android devices. The app is part of PERA’s long-term goal of modernizing and improving the way it serves its membership, and it makes it easy for members and retirees to access and manage their accounts wherever they are.



These annual town halls are an important opportunity to speak directly with Colorado’s current and former public employees and we’re grateful to all who participated.



To watch full recordings of each Town Hall, visit <a href="https://copera.org/townhall" target="_blank" rel="noreferrer noopener">copera.org/townhall</a>.

PERA Leaders Answer Member Questions at 2023 Town Halls

<h4 class="wp-block-heading"><a href="https://www.copera.org/news-you-should-know-will-private-sector-pensions-make-a-comeback" target="_blank" rel="noreferrer noopener" class="broken_link">Could Defined-Benefit Pension Plans Make a Comeback? | Morningstar</a></h4>



Decades ago, it was much more common for workers in the private sector to have access to defined benefit retirement plans. Today, they’re largely only available to public employees. However, some experts say the time is right to consider reopening some of those closed or frozen plans, especially as companies struggle to hire and retain employees.



<h4 class="wp-block-heading"><a href="https://www.cnn.com/2023/03/20/politics/biden-first-veto/index.html" target="_blank" rel="noreferrer noopener">Biden Issues His First Veto on Retirement Investment Resolution | CNN Politics</a></h4>



President Joe Biden issued the first veto of his presidency this month, vetoing a congressional resolution that would have overturned a Department of Labor rule allowing — but not requiring — retirement plans to consider financially relevant environmental, social, and governance (ESG) factors in their investment decisions. <a href="https://peraontheissues.com/esg-making-sense-of-alphabet-soup/">Click here</a> to read about PERA’s integrative approach to investment stewardship and ESG.



<h4 class="wp-block-heading"><a href="https://www.marketplace.org/2023/03/21/consumer-confidence-is-up-despite-current-bank-troubles-will-it-last/" target="_blank" rel="noreferrer noopener">Consumer Confidence is Up Despite Current Bank Troubles — Will It Last? | Marketplace</a></h4>



Recent turmoil in the banking industry, rising interest rates and other financial issues haven’t had much effect on personal spending so far. But there are some signs that that could soon change, with recent polling showing some declines in consumer sentiment about the economy.



<h4 class="wp-block-heading"><a href="https://www.cnbc.com/2023/03/11/how-to-live-well-past-100-superager-sisters-on-longevity-health-tips.html" target="_blank" rel="noreferrer noopener">100-Year-Old Sisters Share 5 Top Tips for Leading a Long, Happy Life | CNBC</a></h4>



Shirley Hodes and Ruth Sweedler are 106 and 103, respectively, and still going strong. What are the key ingredients for living so long? There&#8217;s no secret sauce here, but some simple reminders about living a healthy life.



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News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

News You Should Know: Will Private Sector Pensions Make a Comeback?

If you follow the stock market and investing news, you may have noticed a term that’s been gaining in popularity in recent years: ESG.



ESG is an acronym for environmental, social, and governance factors. It’s a widely used caption for labeling non-traditional aspects of a business that may have a financial impact on a company and its investors.



The term “ESG” is sometimes used to describe business or investment strategies perceived to have a global sustainability focus. However, that may be a misnomer. &nbsp;



<h4 class="wp-block-heading">Evaluating business practices through an ESG lens</h4>


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<figure class="alignright size-large is-resized"><a href="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png" alt="An infographic illustrating PERA's approach to ESG." class="wp-image-44041" width="306" height="396" srcset="https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic.png 612w, https://content.copera.org/wp-content/uploads/2022/10/ABCDESG-graphic-232x300.png 232w" sizes="(max-width: 306px) 100vw, 306px" /></a><figcaption class="wp-element-caption">Click to view infographic</figcaption></figure></div>


Rather than being a one-size-fits-all way to describe a company or investor, ESG is intended to be a way to describe nuanced inputs, outputs, and operations that can affect the environment, society, and/or business governance. These factors may or may not be financially relevant to a company and its investors.



Take a soda company for example. The company’s usage of water, an important ingredient in soda and other drinks, makes it neither an ESG nor non-ESG company. Instead, water could be considered a financially relevant input with implications for business that can be labeled through an ESG lens. Water is a natural resource, and it therefore can be considered an environmental factor. How the company accesses and uses that water in relation to the local community can be considered a social factor, and how the company adapts its strategy to changing supply, demand, regulation, and technology could be considered a governance factor.



How the company approaches these and many other elements of its business can affect its ability to remain competitive in its industry. Competitiveness and profitability are important to companies and their investors, and ESG is just one way to label various factors that may influence long-term financial outcomes.



As investors managing the retirement funds for nearly 700,000 members and retirees, it’s important for PERA to consider financially relevant factors when managing the portfolio, regardless of how they are labeled, or whether they may also have non-financial impacts.



<h4 class="wp-block-heading">PERA’s investment approach</h4>



PERA invests with one objective: to provide present and future benefits for our members and their beneficiaries. To that end, our approach to <a href="https://www.copera.org/investment-stewardship" target="_blank" rel="noreferrer noopener">Investment Stewardship</a> is to seek out investments that are expected to provide the best risk-adjusted returns. PERA values financial sustainability first and foremost, and we do not invest to suit the personal beliefs of any one person or entity.



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PERA staff consider a wide variety of financially relevant factors when deciding what to include in the portfolio, including some that can be labeled as environmental, social, or governance-related. As of Dec. 31, 2023, PERA staff managed approximately 60 percent of the Fund in-house with most of those assets in actively managed portfolios using this integrative approach. PERA does not have any ESG-centric investment requirements and does not screen investments based on any specific ESG criteria.



“As ESG terminology becomes more prominent, it’s important that our members know PERA’s priority is maximizing long-term, risk-adjusted returns so we can continue paying benefits for decades to come,” said PERA Director of Investment Stewardship Tara Stacy. “By focusing on financial sustainability in our investment decisions, we uphold the fiduciary duty we owe to PERA members and their beneficiaries.”



For PERA members in the Defined Contribution Plan or a PERAPlus 401(k) or 457 plan who want to invest their own savings in companies that are screened on ESG criteria, PERA offers the <a href="https://www.copera.org/pera-on-the-issues/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants" target="_blank" rel="noreferrer noopener">PERAdvantage Socially Responsible Investment Fund</a>. The SRI Fund is designed for long-term performance through investment in companies that have demonstrated leadership in ESG-related practices — that is, companies that have shown an ability to manage risks and take advantage of opportunities associated with environmental, social and governance issues. Participants may also choose from a large variety of investments within the self-directed brokerage option.



To learn more about how PERA integrates various financially material factors into its investment decisions, read the Investment Stewardship Report, <a href="https://www.copera.org/investment-stewardship" target="_blank" rel="noreferrer noopener">available online here</a>.

ESG: Making Sense of Alphabet Soup

Recent <a href="https://news.gallup.com/poll/389780/investors-stand-esg-investing.aspx" target="_blank" rel="noreferrer noopener">polling by Gallup</a> shows nearly half of U.S. investors are interested in sustainable funds that take into account environmental, social and governance (ESG) factors, but few have heard much about them or invested in them. Additionally, 70 percent of respondents said they would be likely to include ESG funds in their 401(k) portfolio, if their employer offered them.



Since 2011, PERA has offered the PERAdvantage Socially Responsible Investment (SRI) Fund to members interested in directing their PERAPlus 401(k), 457 or Defined Contribution (DC) Plan savings into sustainable investments.



While PERA invests Defined Benefit (DB) Plan funds on behalf of PERA members and retirees, the SRI Fund provides members the opportunity to invest their personal savings with a focus on socially responsible or ESG leadership. The fund is designed for long-term performance through investment in companies that demonstrate strong ESG practices — that is, companies that have shown an ability to manage risks and take advantage of opportunities associated with environmental, social and governance issues. 



<h4 class="wp-block-heading">What makes the PERAdvantage SRI Fund “sustainable”</h4>



PERA offers a range of <a href="https://coperaplus.empower-retirement.com/participant/#/articles/COPERA/investmentInformation" target="_blank" rel="noreferrer noopener">PERAdvantage fund options</a> to 401(k), 457, and DC Plan participants, but the SRI Fund is the only one with a stated focus on environmental, social and governance factors. In 2019, <a href="https://peraontheissues.com/pera-updates-socially-responsible-investment-fund/" target="_blank" rel="noreferrer noopener">PERA updated the SRI Fund</a>, selecting new asset managers with portfolios offering better market coverage, lower costs and a stronger focus on ESG leadership.



The SRI Fund has two underlying portfolios: The BlackRock ACWI ESG Fund (stocks), which makes up approximately 60 percent of the fund, and the TIAA-CREF Core Impact Bond Fund (bonds), which makes up approximately 40 percent of the fund. Both portfolios include investments that are tilted toward positive ESG exposure. The bond fund also includes investments aimed at driving positive environmental and social impact.



For example, the BlackRock fund <a href="https://www.msci.com/documents/10199/8769a870-eaa5-ec35-8558-424489802702" target="_blank" rel="noreferrer noopener">mirrors an index</a> with more than 500 stock holdings, but companies with primary business in tobacco, controversial weapons, fossil fuel extraction and thermal coal power are not included. Holdings in the information technology sector make up nearly a quarter of the index, with some of the top holdings including companies like Apple, Microsoft and Tesla.



The <a href="https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=a1a3498b-5238-4226-824e-92e2cd2f830f" target="_blank" rel="noreferrer noopener" class="broken_link">TIAA-CREF bond fund</a> includes investments in projects like affordable housing, renewable energy and land conservation. TIAA-CREF says the investments in the Core Impact Bond Fund resulted in the avoidance of nearly 275 million metric tons of emissions, energy savings of 7.7 billion kilowatt hours and the conservation of nearly 850,000 acres in 2020.



As with all PERAdvantage funds, the primary objective of the SRI Fund is to deliver financially sustainable risk-adjusted returns to participating members. In 2021, the SRI Fund <a href="https://content.copera.org/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants/" target="_blank" rel="noreferrer noopener">provided a return of 10.2 percent</a> for the year. The 10-year annualized return was 8.8 percent. As of the end of 2021, PERA members had more than $40 million invested in the fund.



Learn more:



<ul>
<li><a href="https://www.copera.org/peradvantage-sri-fund-a-sustainable-investing-option-for-401k-457-and-dc-plan-participants" class="broken_link">SRI Fund fact sheet</a></li>



<li><a href="https://www.copera.org/peraplus-401-k-457-plans">Enroll in a PERAPlus 401(k) and/or 457 Plan</a></li>



<li><a href="https://www.copera.org/investment-stewardship">PERA’s Investment Stewardship program</a></li>
</ul>

PERAdvantage SRI Fund: A Sustainable Investing Option for 401(k), 457 and DC Plan Participants

A digest of news from publications around the nation about finance, investing, and retirement.



<a href="https://money.com/esg-investing-criteria/" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">Investors Love &#8216;Socially Responsible&#8217; Companies. But Sorting the Good from the Bad Is Harder Than It Looks</a> | <a href="http://www.money.com" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">Money</a>



ESG funds—those that screen investments for environmental, social, and governance factors—have risen in popularity in the past few years. But distinguishing “good” from “bad” can quickly become complicated. Black and white quickly become gray when assessing global companies with dozens or hundreds of product lines, clients, and supply chains. One researcher compared various ESG funds and found an average correlation of 0.54. This suggests that, while the concept of ESG is gaining popularity, finding a consistent model to implement is not as easy as ABC.



<a aria-label="undefined (opens in a new tab)" href="https://www.ai-cio.com/news/us-public-pensions-bounce-back-dismal-first-quarter/" target="_blank" rel="noreferrer noopener">US Public Pensions Bounce Back from Dismal First Quarter</a> | <a aria-label="undefined (opens in a new tab)" href="https://www.ai-cio.com/" target="_blank" rel="noreferrer noopener">Chief Investment Officer</a>



You might have heard the term “V-shaped recovery” (a recovery that’s as swift as the decline) when experts discuss the future of the economy. While many components used to measure the economy have not fully recovered, like the unemployment rate, many investors have seen their portfolios recoup much of their earlier losses, including many public pensions. The 100 largest public pension systems regained $308 billion in market value between March and July. Experts quoted in the article state that, despite the quick market recovery, the future remains uncertain.



<a href="https://content.copera.org/retirement-roundup-esg-is-easier-said-than-done/" target="_blank" label="undefined (opens in a new tab)" rel="noreferrer noopener">Take this Social Security quiz and see if you are smarter than the average American</a> | <a href="http://cnbc.com" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">CNBC</a>



Social Security is a program entirely separate from PERA. However, many PERA members rely on their own or a spouse’s Social Security benefit to some extent in retirement. Understanding Social Security is not easy according to a 12-question poll conducted by insurance company MassMutual. One in two respondents received a grade of D or F when asked true-false questions about the program. How does your knowledge stack up against the average?



<a href="https://www.forbes.com/sites/suzytaherian/2020/07/17/the-dirty-dozen-tax-scams-of-2020/#458c449734a1" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">The ‘Dirty Dozen’ Tax Scams Of 2020: $27 Billion Hit To Business</a> | <a href="http://www.forbes.com" target="_blank" aria-label="undefined (opens in a new tab)" rel="noreferrer noopener">Forbes</a>



Tax scams peak after tax day, which was delayed until July 15 this year. Last year, the FBI received about 300,000 complaints about possible scams, though they suspect that if every scam were reported that number would be closer to 20 million. This article summarizes common scams so you can be better prepared to spot them. Nobody thinks they’ll be scammed, but the truth is that scams cost Americans billions every year.

Retirement Roundup: ESG is Easier Said Than Done

In 2019, mutual funds and ETFs with an ESG focus saw an inflow of <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.cnbc.com/2020/01/14/esg-funds-see-record-inflows-in-2019.html" target="_blank">more than $20 billion</a> nationwide—nearly quadruple the amount these investment products added the year before. ESG funds (funds whose investment strategy includes environmental, social, and governance [ESG] factors) have increased in popularity during the past decade. At the end of 2019, the value of these funds topped $137 billion. While that number represents only one-tenth of one percent of the $20 trillion invested in all mutual and exchange-traded funds, experts expect <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://content.copera.org/pera-updates-socially-responsible-investment-fund/" target="_blank">ESG growth</a> to continue.



PERA members who have a <a rel="noreferrer noopener" label=" (opens in a new tab)" href="https://www.copera.org/recap-of-pera-boards-september-meeting" target="_blank" class="broken_link">PERAPlus</a> account have had access to the PERAdvantage Socially Responsible Investment (SRI) <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://copera401k.voya.com/einfo/fundinfo.aspx?cl=CORADO&amp;pl=650301PU&amp;page=investment_informationfundinformationperadvantagesri&amp;domain=copera401k.voya.com&amp;s=dvw1wyshrdmo5misweslmbqg&amp;d=54707eb56287fc41622036248754ba04012ab13d" target="_blank">Fund</a> since 2011. The fund has two parts: an equity sleeve and a fixed income sleeve. Each sleeve screens investments for various ESG factors. At the end of 2019, PERA replaced both of these with products that have a wider reach and a lower cost. 



<blockquote class="wp-block-quote">“We went through each of the DC funds to see if there’s a better way to construct each. Our goal was to make each more efficient at a lower cost.” &#8211; Jim Liptak, Director of Equities at PERA </blockquote>



The change to the SRI Fund was the latest in a series of updates to PERAPlus Funds. “We went through each of the DC funds to see if there’s a better way to construct each,” said Jim Liptak, Director of Equities at PERA. “Our goal was to make each more efficient at a lower cost.” (In December, PERA On the Issues <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://peraontheissues.com/peraplus-investing-costs-continue-to-fall/" target="_blank">covered</a> changes to the U.S. Small and Mid Cap Stock Fund). 



The SRI Fund was particularly well poised to benefit, as the still emerging ESG market is quickly evolving, giving investors more and better options. 



Change to the Equity
Sleeve



One challenge when constructing an ESG fund is choosing which investments count as sustainable or responsible. “Some people have specific issues they’re focused on—but those issues are different for everyone,” Liptak said. 



Rather than sort through dozens of industries and tens of thousands of companies, Liptak said his team worked to identify a partner that had a sound methodology, good performance, and low costs when evaluating the SRI Fund&#8217;s equity sleeve, which makes up about 60 percent of the fund&#8217;s total holdings. 



PERA found that partner in BlackRock and its product called the MSCI ACWI ESG Focus Index Fund, which tracks <a rel="noreferrer noopener" aria-label=" (opens in a new tab)" href="https://www.msci.com/documents/10199/8769a870-eaa5-ec35-8558-424489802702" target="_blank">the MSCI ACWI ESG Focus Index</a>. This index is designed to maximize its exposure to high ESG factors. 



In addition to preferring this methodology, Liptak said this fund gives investors exposure to emerging markets like China, Brazil, and India, something the other fund did not have. In total, the fund invests in nearly 500 companies. Finally, the costs are lower. Much lower. The annual fees for the equity sleeve of the SRI Fund dropped from 0.30 percent of assets invested to 0.08. 



Change to the Fixed
Income Sleeve



Like equities, ESG is a relatively new concept in fixed income products. Bessie Conty is PERA’s Manager of Fixed Income and said that the bond market is less diversified than the equity market for ESG products. She said it was exciting to find the product they did, the <a href="https://www.nuveen.com/mutual-funds/tiaa-cref-social-choice-bond-fund?shareclass=Advisor" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">TIAA-CREF Social Choice Bond Fund</a>. 



The SRI Fund had been using a J.P. Morgan Government Bond
fund. Conty said the fund didn’t have exposure to corporate bonds. The new fund
does, bringing with it an increased potential return profile.



The TIAA-CREF fund focuses on bonds that can show ESG achievements in their industries. <a href="https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=a1a3498b-5238-4226-824e-92e2cd2f830f" target="_blank" rel="noreferrer noopener" label=" (opens in a new tab)" class="broken_link">TIAA-CREF states</a> that the TIAA-CREF fund has helped: 



<ul><li>Avoid 69.5 million tons of CO2-equivalent
emissions</li><li>Reduce 71,000 tons of air pollutants</li><li>Save 5.6 million megawatt hours of energy </li><li>Add 74,000 megawatts of renewable energy
capacity</li><li>Build 48 LEED-certified buildings</li></ul>



Sustainable Investing
and PERAPlus



As Liptak mentioned, some investors may wish to target even
more specific ESG factors, or make investment decisions based on some other
metric that isn’t represented in PERAdvantage Fund options. Liptak said the TD
Ameritrade brokerage window presents the opportunity for PERA members to invest
according to their specific preferences. This window allows members to choose
among thousands of investments offered on TD Ameritrade’s trading platform. 



But those who wish to invest in ESG funds might find the SRI Fund meets their needs. The fund’s annual cost to investors is 0.26 percent of assets invested, below the <a href="https://www.wsj.com/articles/falling-fees-boost-appeal-of-sustainable-etfs-11554642000" target="_blank" rel="noreferrer noopener" aria-label=" (opens in a new tab)">industry average</a> of 0.35 percent. At the end of 2018, PERA members had about $23 million invested in the fund.

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