
<p>Retirement insights from a Colorado PERA perspective</p>



<p></p>


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


<p>The investment staff at Colorado PERA have a large responsibility: managing more than $61 billion for the defined benefit plans and almost $6 billion for the defined contribution plans on behalf of current and former public employees.</p>



<p>We operate a low-cost investment program—management expenses amount to less than one-half of one percent of the total fund—and staff are always looking for ways to improve. One way we reduce costs for members is by managing a large portion of the portfolio internally rather than paying outside managers.</p>



<p>PERA started managing some assets internally in the 1970s, and we’ve been expanding that capability where appropriate over the years. We now internally manage about 60% of all <a href="https://www.copera.org/investments/defined-benefit-db-plan-assets" target="_blank" rel="noreferrer noopener">DB Plan investments</a>.</p>



<p>We estimate we save our members at least $65 million a year in fees by managing PERA Defined Benefit (DB) Plan assets in-house and, through reductions in administration and investment management fees, have achieved an 82% decrease in fees in the PERAPlus 401(k) plan since 2011.</p>



<p>A new strategy PERA’s investment team has been exploring in recent years is unitization.</p>



<h3 class="wp-block-heading">What is unitization?</h3>



<p>Perhaps the easiest way to understand unitized investment products is to think of them like mutual funds—investors pool their resources in a fund which invests in a mix of investments, and each investor owns shares (or units) of the pool. This can make it easier for individual investors to have exposure to assets that are often only available to large institutional investors, since plan participants can own a portion of the overall pool instead of having to buy each underlying asset.</p>



<p>In the context of PERA’s investment program, unitizing offers to participants in the <a href="https://www.copera.org/investments/defined-contribution-dc-plan-investments" target="_blank" rel="noreferrer noopener">PERA Defined Contribution (DC) Plan</a> and the <a href="https://www.copera.org/retirees/peraplus-401-k-457-plans" target="_blank" rel="noreferrer noopener">PERAPlus 401(k) and 457 Plans</a> the opportunity to invest alongside the PERA DB Plan in a combined pool of assets while reaping the benefits of the professional management experience of our staff.</p>



<p>Unlike the DB Plan, participants in the DC Plan and PERAPlus plans make their own investment decisions and select from a variety of white label funds that are overseen by internal and/or external asset managers. One goal of unitization is to increase the amount of assets managed internally, which reduces the amount of money participants pay in fees to those external managers.</p>



<p>“We have a highly skilled team of investment professionals who work every day to be effective and responsible stewards of the DB Plan’s assets,” said Chief Investment Officer/Chief Operating Officer Amy C. McGarrity. “I’m glad we can extend some of that investment management expertise to our DC Plan and PERAPlus participants and potentially lower their investment management fees.”</p>



<p>PERA’s investment team began exploring unitization several years ago and completed work on unitizing the <a href="https://copera.org/pera-on-the-issues/asset-classes-explained-fixed-income" target="_blank" rel="noreferrer noopener">Fixed Income asset class</a> in 2022, producing cost savings for participants in the PERAdvantage Fixed Income fund. In early 2025, staff completed unitization of the <a href="https://copera.org/pera-on-the-issues/asset-classes-explained-global-equity" target="_blank" rel="noreferrer noopener">Global Equity asset class</a>, PERA’s largest, which allows for improved efficiencies in administration.</p>



<p>PERA’s investment team has long-term aspirations, including the potential of eventually unitizing the entire DB Plan portfolio or offering custom-built target retirement date funds.</p>



<p>Unitization is just one way PERA staff are working to innovate and modernize the services we provide to our members and ensure a secure retirement for the hundreds of thousands of current and former public employees who serve Colorado.</p>


Unitization: Leveraging PERA’s Investment Expertise to Benefit Our Participants


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



<p>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.</p>



<h4 class="wp-block-heading"><strong>Background</strong></h4>



<p>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 <a href="https://copera.org/asset-allocation">strategic asset allocation</a>.</p>



<p>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.</p>



<h4 class="wp-block-heading"><strong>What’s changing</strong></h4>



<p>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.</p>



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



<figure class="wp-block-table"><table><thead><tr><th>Asset Class</th><th>Current Target</th><th>New Target</th></tr></thead><tbody><tr><td>Global Equity</td><td>54.0%</td><td><strong>51.0%</strong></td></tr><tr><td>Fixed Income</td><td>23.0%</td><td><strong>23.0%</strong></td></tr><tr><td>Private Equity</td><td>8.5%</td><td><strong>10.0%</strong></td></tr><tr><td>Real Estate</td><td>8.5%</td><td><strong>10.0%</strong></td></tr><tr><td>Alternatives</td><td>6.0%</td><td><strong>6.0%</strong></td></tr></tbody></table></figure>



<p>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.</p>



<p>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.</p>



<p>“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.”</p>



<p>The Board also reaffirmed its long-term expected rate of return of 7.25%.</p>



<p><strong>Asset Classes Explained:&nbsp;<a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-global-equity" target="_blank" rel="noreferrer noopener">Global Equity</a>&nbsp;|&nbsp;<a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-fixed-income" target="_blank" rel="noreferrer noopener">Fixed Income</a>&nbsp;|&nbsp;<a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-private-equity" target="_blank" rel="noreferrer noopener">Private Equity</a>&nbsp;|&nbsp;<a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-real-estate" target="_blank" rel="noreferrer noopener">Real Estate</a>&nbsp;|&nbsp;<a href="https://www.copera.org/pera-on-the-issues/asset-classes-explained-alternatives" target="_blank" rel="noreferrer noopener">Alternatives</a></strong></p>



<h4 class="wp-block-heading"><strong>What’s next</strong></h4>



<p>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.</p>


PERA Board Adopts New Strategic Asset Allocation Following Study


<p>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?</p>



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



<p>PERA’s approach to stewardship is guided by four main practices:</p>



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



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



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



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



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


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/protect.png" alt="" class="wp-image-54008" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/protect.png 371w, https://content.copera.org/wp-content/uploads/2024/08/protect-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/protect-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>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.</p>



<p>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.</p>



<p>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.</p>



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



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


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/integrate.png" alt="" class="wp-image-54010" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/integrate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/integrate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/integrate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>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.</p>



<p>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.</p>



<p>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 <em>Investment Stewardship Report</em> with new insights into how we consider both risks and opportunities related to climate change.</p>



<p><strong>RELATED:</strong> <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></p>


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/advocate.png" alt="" class="wp-image-54011" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/advocate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/advocate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/advocate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


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



<p>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.</p>



<p>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.</p>



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


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/08/evaluate.png" alt="" class="wp-image-54012" width="278" height="278" srcset="https://content.copera.org/wp-content/uploads/2024/08/evaluate.png 371w, https://content.copera.org/wp-content/uploads/2024/08/evaluate-300x300.png 300w, https://content.copera.org/wp-content/uploads/2024/08/evaluate-150x150.png 150w" sizes="(max-width: 278px) 100vw, 278px" /></figure></div>


<p>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.</p>



<p>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.</p>



<p><strong>RELATED:</strong> <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></p>



<p>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.</p>



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


Tag Archives:

Unitization: Leveraging PERA’s Investment Expertise to Benefit Our Participants

PERA Board Adopts New Strategic Asset Allocation Following Study

Investment Stewardship Report Highlights How PERA Manages Plan Assets

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