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.

At its June meeting, the PERA Board of Trustees released the 2023 Annual Comprehensive Financial Report, which contains a detailed account of PERA’s finances, investment performance, and funded status for the 2023 calendar year.



The report provides a wealth of information for anyone who wants to know more about PERA’s financial health, operations, and membership. Below we highlight some key numbers from the report and what they mean for members and retirees.



<h4 class="wp-block-heading">Financial highlights</h4>


<div class="wp-block-image">
<figure class="alignright size-large is-resized"><a href="https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023.png"><img decoding="async" loading="lazy" src="https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-791x1024.png" alt="An overview of PERA's financial results from 2023. Investment portfolio fair value: $61.5 billion. Net rate of return: 13.4%. Members actively contributing to PERA: 213,548. Employers: 410. Total covered participants: 59,470. Funded status: 69.6%. Retirees and benefit recipients: 138,553. Annual retirement benefit payments: $5.3 billion. Invested in Colorado-based companies, partnerships, and assets: $788.9 million. 30-year rate of return: 8.3%." class="wp-image-51503" width="396" height="512" srcset="https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-791x1024.png 791w, https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-232x300.png 232w, https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-768x994.png 768w, https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-1187x1536.png 1187w, https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023-1583x2048.png 1583w, https://content.copera.org/wp-content/uploads/2024/06/by-the-numbers-acfr-2023.png 1700w" sizes="(max-width: 396px) 100vw, 396px" /></a><figcaption class="wp-element-caption">Click/tap to enlarge</figcaption></figure></div>


As of December 31, 2023, PERA manages an investment portfolio of $61.5 billion for the defined benefit trust funds. The portfolio ended the year with a positive return of 13.4% net-of-fees. Over the past 30 years, the portfolio has earned an annualized return of 8.3%.



In total, PERA paid $5.3 billion in retirement benefits to more than 138,000 retirees and benefit recipients in 2023.



As required by state law, PERA is on a path to full funding by 2048, and as of the end of the year, the combined funded ratio for the defined benefit trust funds was 69.6%.



Want to know more? Explore highlights from the ACFR in an <a href="https://www.copera.org/pera-by-the-numbers-a-closer-look-at-the-2022-annual-report" target="_blank" rel="noreferrer noopener" class="broken_link">interactive format here</a>.



<h4 class="wp-block-heading">What the numbers mean</h4>



The bottom line is member contributions and retiree benefit increases will remain at their current levels.



The&nbsp;<a href="https://www.copera.org/pera-board-releases-2022-annual-report" target="_blank" rel="noreferrer noopener" class="broken_link">Automatic Adjustment Provision</a>, which went into effect with Senate Bill 200 in 2018, adjusts member and employer contributions and annual benefit increases based on PERA’s funding progress. The&nbsp;calculation is made on an annual basis, to take effect the following year.



Based on 2023’s financial results, adjustments via the provision will not be needed next year. That means member contributions will remain unchanged in 2025. Employer contribution rates also will not change as a result of the provision. Eligible benefit recipients will receive a 1% Annual Increase in July 2024 and another 1% Annual Increase in July 2025.



More resources



<ul>
<li><a href="https://www.copera.org/pera-by-the-numbers-a-closer-look-at-the-2022-annual-report" target="_blank" rel="noreferrer noopener" class="broken_link">Digital Snapshot</a></li>



<li><a href="https://copera.org/annual-report" target="_blank" rel="noreferrer noopener">2023 Annual Comprehensive Financial Report (</a>PDF)</li>



<li><a href="https://copera.org/2023-popular-annual-financial-report" target="_blank" rel="noreferrer noopener">2023 Popular Annual Financial Report</a> (PDF)</li>



<li><a href="https://content.copera.org/pera-board-releases-2023-annual-report/" target="_blank" rel="noreferrer noopener">2023 Actuarial Valuation</a> (PDF)</li>
</ul>

PERA Board Releases 2023 Annual Report

After benefiting from <a href="https://content.copera.org/2018-markets-year-in-review/">strong returns during 2017</a>, investors found 2018 far more challenging. A generally positive start to the year, for stocks in particular, gave way to concerns over rising interest rates, a continuing trade dispute between the U.S. and China, weakening corporate profit growth, and concerns about China’s slowing economic growth rate. As a result, asset price volatility returned to markets in 2018 after a long period of relative calm, and the year ended on a negative note.



As a reminder, Colorado PERA invests in <a rel="noreferrer noopener" label="multiple asset classes (opens in a new tab)" href="https://www.copera.org/2018-markets-year-in-review" target="_blank" class="broken_link">multiple asset classes</a>, including <a href="https://www.copera.org/pera-board-meeting-notes-setting-peras-portfolio-mix" class="broken_link">public equities</a>, <a rel="noreferrer noopener" label="bonds (opens in a new tab)" href="https://content.copera.org/asset-class-in-depth-real-estate/" target="_blank">bonds</a>, <a rel="noreferrer noopener" label="private equity (opens in a new tab)" href="https://content.copera.org/pera-board-meeting-notes-setting-peras-portfolio-mix/" target="_blank">private equity</a>, <a rel="noreferrer noopener" label="real estate (opens in a new tab)" href="https://content.copera.org/real-return-investments-for-inflation-protection/" target="_blank">real estate</a>, and <a href="https://www.copera.org/2018-markets-year-in-review" target="_blank" rel="noreferrer noopener" label="opportunistic assets (opens in a new tab)" class="broken_link">opportunistic assets</a>. PERA achieves a return in each of these areas through public and private market investments. The diversification of PERA’s $46 billion portfolio helps to maintain a more stable return stream, even during volatile times, such as 2018.



Looking at specific areas of investment, global stock markets faced significant headwinds last year, which only worsened in the final three months of 2018. The <a href="https://www.msci.com/acwi" target="_blank" rel="noreferrer noopener" aria-label="MSCI All Country World IMI Index (opens in a new tab)">MSCI All Country World IMI Index</a>, which is PERA’s Equities asset class benchmark, and which measures the performance of stocks of all sizes in both developed and emerging market countries, fell 10.1 percent (in U.S. dollar terms and net of taxes) during 2018. This index was actually up 3.7 percent during the first nine months of the year, only to fall 13.3 percent in the final quarter, as the aforementioned economic worries emerged.



Regionally, stocks saw divergent results for the first three quarters, while falling across the globe in the fourth quarter. In the U.S., the total return for the flagship <a rel="noreferrer noopener" label="S&amp;P 500 Index (opens in a new tab)" href="https://www.copera.org/2018-markets-year-in-review" target="_blank" class="broken_link">S&amp;P 500 Index</a> was a positive 10.6 percent through the end of September. The final three months of the year saw a sharp reversal, as the index dropped 13.5 percent, creating a yearly total return loss of 4.4 percent. The rest of the developed world did not benefit from the same good start as the U.S., as the <a href="https://www.msci.com/documents/10199/99459e68-5e21-4888-ace6-72a3ffe9b1ab" target="_blank" rel="noreferrer noopener" aria-label="MSCI World ex U.S. Index (opens in a new tab)">MSCI World ex U.S. Index</a> fell 1.5 percent in the first nine months, before dropping 12.8 percent during the final three months and losing 14.1 percent for the full year. Emerging market shares fared even worse than those in developed nations, shedding 7.7 percent through the end of September, losing 7.5 percent in the final quarter, and costing investors 14.6 percent for the full year.



Fixed income securities also exhibited significant volatility last year. The <a rel="noreferrer noopener" aria-label="U.S. 10-Year Treasury Note (opens in a new tab)" href="https://www.investopedia.com/terms/1/10-yeartreasury.asp" target="_blank">U.S. 10-Year Treasury Note</a> saw its yield move from 2.40 percent at the beginning of the year to a peak of 3.26 percent in early October, before ending the year at 2.68 percent. The <a href="https://www.investing.com/rates-bonds/u.s.-2-year-bond-yield" target="_blank" rel="noreferrer noopener" aria-label="2-Year Note (opens in a new tab)">2-Year Note</a> had even more extreme yield moves, starting at 1.88 percent, peaking at 2.97 percent, and ending at 2.49 percent. Treasuries appeared to benefit from a “flight to safety” in the final quarter of 2018, as investors sold falling stocks and bought bonds, causing bonds prices to rise and bond yields to fall.



While 2018 was
disappointing with regard to investment market returns, PERA continues to focus
on a multi-decade investment horizon, consistent with the long-term needs of
our members. Because approximately one-fifth of the portfolio is not publicly
traded and publicly valued (real estate and private equity investments), PERA’s
official 2018 investment results have yet to be finalized. 



The final investment return results for 2018 will be known once the financial audit overseen by the Office of the State Auditor is completed and the financial statements have been reviewed by the PERA Board of Trustees in late June. These results will be used as part of the calculations that determine PERA’s progress toward the funded goals laid out in last year’s SB 18-200 legislation, which included an <a href="https://www.copera.org/pera-staff-keep-legislators-prepared-for-2019-legislative-session" target="_blank" rel="noreferrer noopener" label="automatic adjustment (opens in a new tab)" class="broken_link">automatic adjustment</a> provision designed to keep the system on track to full funding.

2018 Markets Year In Review

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 Real Estate asset class. (See PERA’s <a href="https://www.copera.org/good-governance-is-standard-practice-for-colorado-pera" target="_blank" rel="noreferrer noopener" class="broken_link">Statement of Investment Policy</a> for details.)



PERA separates 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, <a href="https://www.copera.org/a-brief-look-at-peras-opportunity-fund" target="_blank" rel="noreferrer noopener" class="broken_link">“Asset Liability Study Plots Course for Future”</a>).



The Real Estate program’s objective is to generate diversified investment returns as well as to provide a steady stream of income in the form of rents to assist in the cash-flow needs PERA has when paying monthly retirement benefits.



Currently, the Board’s strategic target to Real Estate is 8.5 percent, with a range of 5 – 12 percent. Assets at the end of 2017 totaled $4.2 billion (8.6 percent) of the entire $49 billion portfolio.



PERA was an early institutional investor in Real Estate. The first Real Estate investment PERA made was made in 1984. Over the last 30 years, PERA’s investments in Real Estate have evolved and range from being a sole owner of a property to investing alongside other institutional investors in properties around the globe.



The Real Estate asset class, while offering diversification for the entire investment portfolio, is broadly diversified by property type as well as geographic location. Property types broadly include industrial, multifamily, office, and retail. PERA has Real Estate investments around the world in countries diverse as Australia, India, and China. PERA’s Real Estate investments are 97.4 percent domestic and 2.6 percent outside of the U.S.



Unlike public equities (stocks) and fixed income (bonds) where the price of the investment is publicly known, PERA’s Real Estate portfolio investments are not traded on a public exchange. The PERA Real Estate portfolio’s investments are appraised annually and independently audited before being included in the total return information published in the <a href="https://content.copera.org/good-governance-is-standard-practice-for-colorado-pera/" target="_blank" rel="noreferrer noopener">Comprehensive Annual Financial Report.</a>



The PERA Board receives information on each Real Estate fund investment made and has the ability to access property-level information as desired. This information, while not publicly available, allows Trustees to have detailed information on the holdings within the portfolio. Fund 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.



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



<a href="https://content.copera.org/how-does-pera-measure-up/" target="_blank" rel="noreferrer noopener">What is a Policy Benchmark?</a>



<a href="https://content.copera.org/pera-board-meeting-notes-setting-peras-portfolio-mix/" target="_blank" rel="noreferrer noopener">Asset Class In-Depth: Private Equity</a>



<a href="https://content.copera.org/asset-class-in-depth-real-estate/" target="_blank" rel="noreferrer noopener">Asset Class In-Depth: Fixed Income</a>



<a href="https://www.copera.org/asset-class-depth-fixed-income" target="_blank" rel="noreferrer noopener" class="broken_link">Asset Class In-Depth: Equities</a>



<a href="https://www.copera.org/asset-class-in-depth-real-estate" target="_blank" rel="noreferrer noopener" class="broken_link">A Brief Look at PERA’s Opportunity Fund</a>

Tag Archives:

PERA Board Releases 2023 Annual Report

2018 Markets Year In Review

Asset Class In-Depth: Real Estate

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