Colorado Public Employees’ Retirement Association isn’t afraid to try new things, but the $45 billion pension plan also embraces the old adage of if it ain’t broke, don’t fix it.
“We consider innovation in the context of what we think is going to be valuable in the long term,” said Colorado PERA Chief Investment Officer Jennifer Paquette. “But we also keep many things intact because they’re working for us.”
The Denver-based organization draws accolades from market participants for being well ahead of most of its pension peers in trading, technology and market structure savvy. The pension plan was an early entrant into areas such as private equity, real estate and international equity, and its senior traders are thought leaders on sophisticated topics including algorithms and self-directed trading. Colorado PERA is the 2016 Markets Choice Award winner for Best Public Pension Plan.
In 2015, Colorado PERA concluded an asset-liability study, revised its long-term asset allocation policy, and completed research on whether hedge-fund investments should be introduced into the portfolio.
“After a multi-year effort with a number of consultants and the staff, the board considered the merits and agreed to allow two types of hedge-fund strategies within our Opportunity Fund,” Paquette told Markets Media. “We haven’t funded anything yet, but we’re beginning to do work on looking at funding those strategies.”
Colorado PERA’s Opportunity Fund is comprised of investments that do not fit into the other asset classes of global equity, fixed income, alternative investments, and real estate. Recently, the Opportunity Fund held investments in timber, tactical and credit opportunities, and risk parity.
Paquette sees hedge funds as a way to improve the long-term risk-return profile of the Opportunity Fund. “We’re only at about 2.5% of assets with a long-term target of 6%,” she said. “There’s a lot of heavy lifting going on here internally to figure out how to deploy assets successfully in that space.”
As fiduciaries for state employees, teachers and police officers whose investment horizons can span many decades, public pension plans are truly long-term investors. On that basis, Colorado PERA has delivered: its 10-year annualized net return through 2014 was 6.8%, versus 6.6% for its custom benchmark and 6.4% for the median comparable plan. “We focus on the longer term in managing the portfolio and we have produced strong, competitive numbers over the last five and 10 years,” Paquette said.
Colorado PERA is considering adding infrastructure investing as another incremental initiative; it continues to give a leg up to Colorado-centric investments; and it recently reviewed its investment consulting relationship, ultimately deciding to stay with Aon Hewitt.
“We continue to be very focused on our in-house asset management, keeping our team strong and maintaining a good lineup of external managers to support the long-term performance,” Paquette said.
“In the past year we have had more consistency than change,” she added. “At the edges, we are continuing to innovate and make changes where we think we’re going to get paid for it.”