As we reported in June, Colorado PERA’s 2016 investment returns came in at 7.3 percent, a marked improvement over 2015’s 1.5 percent. Markets were running hot last year, a trend which has accelerated in 2017, so unless things head south between now and the end of December, returns could look respectable again.
But here’s a fact for us to puzzle over: compared to other public sector pension funds, PERA’s 2016 returns look weak. According to the Wall Street Journal:
“Large U.S. systems that oversee retirement funds for police, firefighters, teachers and other public workers earned median returns of 12.4% in the fiscal year ended June 30, according to Wilshire Trust Universe Comparison Service. That is their best annual result since 2014.”
Yes, you read that correctly. 12.3 percent, or 5.1 percentage points higher than PERA’s returns. It would be good to know what in PERA’s mix of investment resulted in such relatively paltry performance.
Here are some clues. According to the 2016 Comprehensive Annual Financial Report (CAFR), PERA invested 53.5 percent in global equity, 23.5 in fixed income, 8.5 percent in private equity, 5 percent in an opportunity fund (primarily in “timber, risk-parity, tactical, credit, and other opportunistic strategies.”)
Charts in the CAFR suggest that the laggard was global equity, over half of PERA’s portfolio. The benchmark for global equity was an 8.4 percent return, while PERA’s portfolio brought in just 7.4 percent. Private equity, real estate, and the opportunity fund all beat their benchmarks.
As the WSJ points out, however, even had PERA hit the median national return number, it would have made little difference:
“Funding levels won’t improve significantly unless cities and states ramp up their yearly pension contributions, according to a recent report by the Center for Retirement Research at Boston College. But budget problems in many states and cities mean governments either can’t afford to make aggressive payments or opt to stretch them over decades so big outlays are delayed.”