Recent attention on the strong investment performance of public pension plans has generated questions for Colorado PERA about its own rate of investment return. This post will address those questions to make sure the public can make an accurate assessment of PERA’s investment program.
- Timing matters. It is very important when considering investment performance that similar time frames are being compared. Many public pensions report financial performance on fiscal years that end on June 30. Others, such as PERA, use the calendar year-end date of December 31 to report returns. Different timeframes will certainly lead to differences in investment performance because the market can deliver dramatically different results from one month to the next. Comparing plans with different reporting timeframes is akin to comparing the weather in December to the weather in July.
- Allocation matters. Each pension has its own investment strategy, which is reflected in the asset allocation or percentage of the total fund dedicated to various investment classes. Asset allocation may differ from plan to plan depending on factors such as overall risk tolerance, liability structure, or state laws. The PERA Board of Trustees determines the strategic asset allocation for PERA’s investment portfolio. Over time, the Board’s strategy and allocation have generated returns that have landed PERA in the top quartile of investment performance over the last 10 years (as of December 31, 2016) when compared with peer investors. In years when the global equity market is up, those investment programs with a large stake in that asset class might show a stronger performance. As a long-term investor, PERA has the responsibility to look at the long-term and not try to time the market.
- Understanding these differences matters. These are differences with significant distinction. Certainly, it can be tempting to draw conclusions based on headlines or topline information – pension plans are complicated creatures. But, in the case of billion-dollar investment portfolios, the details matter. In the same way a smart traveler wouldn’t plan a ski trip at the beach in July, it is important to pay attention to what is happening and when – or risk some serious confusion when you show up with skis to build your sand castle.
Colorado PERA 2016 Comprehensive Annual Financial Report