Category: Inside Colorado PERA

A closer look into PERA operations, administration, and the Board of Trustees

PERA Board Discusses Strategic Plan, Investment Strategy and More at 2024 Planning Session

Posted on by Kurt Sevits

The PERA Board of Trustees held its annual Planning Session September 18 to 20 in Colorado Springs.

Over the course of three days, Trustees participated in informational meetings, workshops, and took action on a number of important items, some of which are summarized below.

Strategic planning

An important part of the Board’s duties is laying out PERA’s strategic direction and priorities, and the Trustees have spent several meetings working on the organization’s next strategic plan.

During the most recent meeting, the Board reviewed the results of surveys sent to various stakeholders, including members, retirees, and employers. Through those surveys, the Trustees were able to identify some of PERA’s top strengths, weaknesses, opportunities, and threats, which will help lay out the organization’s goals for the next several years.

The Board expects to have a plan draft ready for Trustee review in January.

CEM Benchmarking report

Each year, the PERA Board receives a report from CEM Benchmarking that rates PERA on the various services it provides to members and the cost of providing those services, as well as comparing PERA to other similar public pensions.

This year’s CEM report gave PERA a service score of 85 compared to the peer average of 81. PERA earned particularly high scores on factors such as the average time a member spends waiting on the phone to talk to a customer service representative, the features and functionality of the secure online member portal, and participation in member education webinars.

CEM found PERA’s administrative costs amount to $58 per member, below the peer average of $67. Overall, the CEM report found PERA provides a higher level of service at a lower cost than the average public pension plan.

Pension Review Subcommittee’s review of assumptions

Every three years, the State Legislature’s Pension Review Subcommittee is tasked with commissioning a report from an independent firm that is meant to evaluate the various assumptions PERA uses to forecast its financial health, as well as determining whether PERA is on track to meet its goal of full funding and a handful of other assessments.

The Subcommittee began that process in January and chose Switzerland-based PNYX Group to conduct the analysis. PNYX then presented its findings and recommendations in July.

Using its own models and projections, PNYX opined that some of PERA’s key assumptions should be adjusted based on their own assumptions and methodologies, and stated the fund could be facing a significant shortfall in future years as a result. Therefore, PNYX recommended a handful of policy options, primarily related to increasing contributions—including $2 billion from the State—in order to improve the fund’s position. Members of the Pension Review Subcommittee and Pension Review Commission expressed doubts about the feasibility of such changes.

In discussing with the Board, PERA staff and the board’s consultants presented on some of the methods and findings of the report, and highlighted their own confidence in the assumptions, methodologies, and models that form the basis of their own recommendations to the PERA Board. Additionally, the review missed key elements that would have made the report more comprehensive and on point, they said. For example, the Board just concluded a study of PERA’s strategic asset allocation and is beginning a study comparing actual experience over the past four years to actuaries’ projections, both of which could help address some of the findings of the PNYX report.

PERA staff, along with the PERA Board’s actuarial and investment consultants, presented a formal response to the PNYX report on September 23 and may also address the report and its findings with the Pension Review Commission on September 27.

Asset/liability study

The Board concluded its yearlong asset/liability study and adopted new long-term asset allocation targets for the PERA Defined Benefit Plan portfolio. The changes aim to add diversification to the portfolio over time and enhance the potential for future returns.

READ MORE: PERA Board Adopts New Strategic Asset Allocation Following Study

2025 Board meeting dates

Finally, Trustees wrapped up the September Planning Session by approving the calendar for 2025 Board meetings, choosing the following five dates:

  • January 17
  • March 14
  • June 27
  • September 17-19 (Planning Session)
  • November 21

PERA Board meetings are streamed live on copera.org and include time for public comment. In response to a recommendation from the Pension Review Commission, meeting recordings will be available online following the Board’s November 15, 2024 meeting.

Investment Stewardship Report Highlights How PERA Manages Plan Assets

Posted on by Kurt Sevits

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?

Every year since 2018, we’ve published the Investment Stewardship Report to answer those questions and provide transparency into why and how PERA invests on behalf of nearly 700,000 members.

PERA’s approach to stewardship is guided by four main practices:

  • We protect our members’ interests through cost-conscious investment management.
  • We integrate financially relevant factors into our investment decisions.
  • We advocate for robust capital markets and business practices.
  • We evaluate various exposures within our portfolios on an ongoing basis.

Protect

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.

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.

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.

RELATED: Asset Classes Explained

Integrate

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.

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.

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 Investment Stewardship Report with new insights into how we consider both risks and opportunities related to climate change.

RELATED: ESG: Making Sense of Alphabet Soup

Advocate

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.

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.

Evaluate

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.

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.

RELATED: How PERA Prioritizes Financial Value Over Personal or Political Values

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.

Explore the Investment Stewardship Report Digital Snapshot or download the Investment Stewardship Report to learn more.

CEO Andrew Roth, Executives Answer Questions in PERA Town Halls

Posted on by Kurt Sevits

PERA’s executive team hosted two virtual Town Hall meetings on Wednesday, June 26 to provide updates on PERA and answer questions from members and retirees.

Chief Executive Officer/Executive Director was joined by Chief Investment Officer/Chief Operating Officer Amy C. McGarrity, Chief Benefits Officer Patrick Lane, and Chief Operating Officer Jeremy Hill.

We’ve included clips of some of the executives’ answers below, and full recordings of each Town Hall are available at copera.org/townhall.

How did PERA’s investments perform last year and what is PERA’s financial status?

McGarrity began by highlighting PERA’s financial results from 2023, as reported in the recently released 2023 Annual Comprehensive Financial Report.

“For the year ended December 31, 2023, PERA’s investment portfolio earned a positive return of 13.4% net-of-fees,” McGarrity said. “The value of the total PERA Defined Benefit Plan was $61.5 billion at the end of the year, and PERA’s funded status was 69.6%.”

PERA remains on track to meet its funding goals, and as such, there will be no automatic adjustments to member and employer contributions or annual benefit increases. Retirees and beneficiaries will receive a 1% Annual Increase in July 2024 and another 1% in 2025.

Explore PERA’s financial results in an interactive format at copera.org/snapshot.

As PERA’s new CEO, do you anticipate making any major changes, such as implementing a larger annual benefit increase for retirees?

Roth reiterated that staff and the Board understand the challenge inflation has posed in recent years as the Annual Increase—which is set in statute and can only adjust up or down based on PERA’s funding progress, has not kept pace.

“I, as Executive Director, do not have the power or authority to make changes to the Annual Increase,” Roth said. “We understand and are doing everything we can to address financial security for our retirees, as is central to our mission.”

Has PERA been planning for the possibility of a recession, and what could that mean for the portfolio?

McGarrity discussed PERA’s strategic asset allocation—which is set by Board—and its focus on long-term performance. In addition, the Board is currently conducting a study of its investment strategy known as an asset/liability study, and that process includes modeling many different scenarios.

“In that 30-year capital market assumption set, they have a variety of market scenarios, there are recessions, there are bull markets,” McGarrity said. “So as it relates to shorter term or medium term economic events…they’re incorporated into those long-term assumptions.”

PERACare premiums have largely held steady over the past few years; will they remain the same next year?

“I’ll be very direct and say, ‘No.’ PERACare premiums will be going up for the 2025 plan year,” Lane said. “Our Medicare Advantage participants have been protected from premium increases for the last three years because of the rate we were able to get guaranteed when we renewed three years ago. Unfortunately, that rate guarantee is expiring this plan year.”

Lane added that regulatory changes have also prompted insurance carriers to raise their rates for the coming plan year. PERA is still working out the details with carriers and expects to provide 2025 plan information in the fall.

What is PERA doing about Social Security’s Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)?

Lane said that since the WEP and GPO are provisions of federal law, any changes would have to come from Congress. And while legislators have introduced various bills related to the issue over the years, lawmakers haven’t come to an agreement on a path forward.

“What would happen if the WEP/GPO were to be repealed, that would mean more money coming out of the Social Security trust fund, and that is really where legislation has failed in the past,” Lane said. “I think there are a lot of members of Congress who are interested in the subject and are open to the conversation, but they have yet to reach an agreement on how to actually fund that additional money that would be coming out of the trust fund.”

We follow this issue closely and will provide any updates on federal WEP/GPO legislation when we can.

Where do you see PERA headed in the future and how can I be sure I will receive my full benefit when I retire?

“We have been delivering benefits for almost a century, and we are focused on doing the exact same thing for the next century; your benefits will be here,” Roth said. “Colorado PERA is here for its members and we look forward to serving you as we move into the future together.”

For full recordings of both Town Halls, visit copera.org/townhall.

PERA Board Releases 2023 Annual Report

Posted on by Kurt Sevits

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.

Financial highlights

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%.
Click/tap to enlarge

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 interactive format here.

What the numbers mean

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

The Automatic Adjustment Provision, 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 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

Changes Coming Soon to ‘PERA On The Issues’

Posted on by Kurt Sevits

Soon, things will look a little bit different around here.

PERA On The Issues is moving to a new (but familiar) home. All the content you see here will soon be located on PERA’s main website, copera.org.

Beginning in late June, you’ll find PERA On The Issues at copera.org/pera-on-the-issues, where the articles will be shown alongside the rest of PERA’s informational and educational content.

Why the change?

We want to make sure all the content on PERA On The Issues is as convenient and accessible as possible for our readers. That’s a major reason we’re moving the blog to the same website where we post other news and information for PERA members, retirees, and stakeholders.

Beyond streamlining our online content publishing and management, moving PERA On The Issues articles to our main website will ensure the content meets our accessibility and brand standards. It also removes any doubt that the information you’re reading is coming directly from Colorado PERA.

With this move, copera.org will be a one-stop online location for information about PERA benefits, educational webinars, Board of Trustees meetings, account management, and more. That means it will be easier to find all the relevant information on a topic with fewer clicks.

What’s not changing

While the blog location is moving, we’re not changing anything about the topics we cover or how often we post new articles. You’ll still receive a biweekly email with news about PERA and retirement security in four categories: Inside Colorado PERA, Issues & Perspectives, Legislation & Governance, and News You Should Know, and we’ll still share those articles on our social media channels and elsewhere.

We’ll continue to focus on legislation and policy that are important to PERA’s stakeholders, as well as other timely news about public employee retirement.

We encourage you to take a look at the new homepage when it launches on June 28 and let us know what you think. And as always, you can join the conversation on any of our social media pages—we’re on Facebook, Instagram, and LinkedIn. You can also email us at POTImail@copera.org.

2024 PERA Town Halls Taking Place on June 26

Posted on by planeteria

Save the date—this year’s Town Halls with PERA executives are set for June 26.

PERA holds Town Halls each year after the release of the Annual Comprehensive Financial Report (ACFR), which contains details on the Plan’s finances and membership for the previous calendar year. The PERA Board of Trustees will release the 2023 ACFR at its June 21 meeting.

This year, participants will have the opportunity to meet PERA’s new CEO/Executive Director, Andrew Roth. He and the executive team will be taking questions live during two Town Halls.

This year’s Town Halls will once again be virtual, with the option to participate online, via social media, and on the phone.

Event details

Date and time: Wednesday, June 26

How to participate

There are multiple ways to take part in these virtual events:

Both Town Halls are open to anyone who would like to participate, but the content of each will be tailored to its respective audience.

If you’re unable to attend either event, recordings will be available afterward.

For more information, visit copera.org/townhall.

Q&A With PERA’s New CEO/Executive Director Andrew Roth

Posted on by planeteria

Andrew Roth began his tenure as Colorado PERA’s eighth CEO/Executive Director on Monday, May 13.

PERA On The Issues sat down with Mr. Roth to learn more about him, his experience, and his perspective on the issues facing PERA and its members.

Answers have been lightly edited for length and clarity.

Tell us a little bit about your career and how you ended up working in public pensions.

I started my professional career with the California State Auditor as a performance auditor. The State Auditor taught me how to critically assess government programs and identify and review key documents. After working as a Public Information Officer for the California Department of Social Services, I joined the state securities regulator as their Director of Education and Outreach. There I championed anti-fraud and financial literacy education for seniors, military servicemembers, and youth. That work led to my entry at the California State Teachers’ Retirement System (CalSTRS) as the Director of Retirement Readiness. Most recently, I was Deputy Director of the Teacher Retirement System of Texas (TRS).

You have worked at some of the biggest public pension plans in the country. How do you think that will inform your leadership at PERA?

The experience I’ve gained at CalSTRS and TRS taught me that every pension system is both similar and yet unique. Pension systems share the need to serve members, engage with employers and stakeholders such as the Legislature, and attract and retain the talent necessary to administer a large financial institution with billions of dollars in assets. Each system also operates in a unique environment with its own plan design, statutory and regulatory frameworks, and the organizational culture cultivated by leadership. As I onboard with PERA, I will listen to the terrific talent already in place to determine what works and where opportunity lies to help advance the mission and serve our members.

PERA is often a topic of discussion at the State Legislature and beyond. What’s your approach to engaging with stakeholders?

I see the role of the CEO/Executive Director as one that is primarily external facing. While I will spend time working closely with the executive team and leadership on the high-level decisions my position is responsible for addressing, I will also prioritize serving as the face of Colorado PERA with its stakeholders. This includes member organizations, legislators, state and national pension associations, institutional investor organizations, and other key participants in the pension space. As the CEO/Executive Director, I will approach interactions with an open mind and a listening ear.

There’s been some renewed interest in defined benefit plans in both the public and private sectors. What’s your take on the future of pensions?

I’ve been a proponent of defined benefit plans for 20 years. They are—and in my opinion will remain—an effective solution for helping to ensure retirement security for all Americans. Given the vagaries of the stock market, and the challenge many people experience in making the right financial decisions necessary to fund a retirement, I believe defined benefit plans constitute a bedrock element in the nation’s retirement landscape.

As we develop our next strategic plan, what trends or issues do you think the PERA Board will want to address?

In my experience, the trustees of pension systems tend to focus their attention on issues that involve actuarial soundness, excellent customer service, operational effectiveness, and employer and stakeholder relations. Simply put, that equates to members, employers, financial issues, and operational concerns. I look forward to a collaborative process with the Board, executive staff, stakeholders, and the organization in building a roadmap to continued success for Colorado PERA.

Finally, if you could deliver one message to our active members and retirees, what would it be?

It is an honor and a privilege to serve as the CEO/Executive Director for Colorado PERA. I will work hard every day to ensure the retirement security of PERA’s hardworking members and the sustainability of the fund.

PERA Board Names Andrew Roth as New Executive Director

Posted on by planeteria

After an extensive nationwide search, the Colorado PERA Board of Trustees announced it has selected PERA’s next Executive Director.

The Board named Andrew Roth, Deputy Director of the Teacher Retirement System of Texas, as PERA’s eighth Chief Executive Officer/Executive Director. The Board announced Roth’s appointment at its March 15 meeting.

“The Board conducted an extremely thorough process with highly qualified candidates from across the country,” said Board Chair Marcus Pennell. “Mr. Roth stood out among these leaders because of his experience managing complex pension organizations, a commitment to PERA’s fiduciary obligations and as someone who has demonstrated a dedication to public service.”

Prior to his role at the Teacher Retirement System of Texas, Roth served in high-level positions at the California State Teachers’ Retirement System and in various departments within the State of California.

“PERA is one of the nation’s premier pension funds and it is an honor to serve the members and retirees who have dedicated their careers to public service in the great state of Colorado,” Roth said. “PERA has contributed to a secure retirement for Colorado’s public workforce for nearly 100 years, and I appreciate the Board’s confidence in me to carry this vital mission into the future. I look forward to working closely with the Board, our employees, and every member to ensure PERA remains steadfastly focused on meeting the retirement needs of hundreds of thousands of Coloradans.”

Roth will begin his new role as Chief Executive Officer/Executive Director on May 13.

Recap of PERA Board’s March 2024 Meeting

Posted on by planeteria

The Colorado PERA Board of Trustees met virtually on Friday, March 15 for its second regularly scheduled meeting of the year.

Below is a summary of key actions and discussions that took place during the meeting.

New Executive Director

At the beginning of the meeting, the Board announced it has selected PERA’s next Executive Director following an eight-month nationwide search.

Andrew Roth will fill that role beginning May 13. He comes to PERA from the Teacher Retirement System of Texas, and previously worked at the California State Teachers’ Retirement System and in various departments within the State of California.

READ MORE: PERA Board Names Andrew Roth as New Executive Director

Board election update

The Board announced in January that four Trustee seats would be up for election in May. At the March meeting, Trustees voted to move forward with elections for three of those seats—one in the School Division and two in the State Division.

The Denver Public School Division seat, currently held by Amy Grant, is uncontested. The Board voted to reappoint Grant to another four-year term beginning in July.

Members in the School and State divisions will receive ballots in May, and the Board will announce election results at its June meeting.

Legislative update

State lawmakers are halfway through the 2024 legislative session, and Public and Government Affairs Manager Michael Steppat joined Interim Executive Director/Chief Investment Officer Amy C. McGarrity to provide an update on PERA-related legislation.

So far this session, legislators have introduced more than 500 bills, seven of which pertain to PERA.

Of those seven proposed bills, one—HB24-1169, which would have repealed a 2016 law that requires PERA to divest all direct holdings from companies that have economic prohibitions against Israel—has died in committee. The other six remain under consideration at the State Capitol.

Steppat said it’s likely there will be some additional PERA-related legislation before the session is over. PERA On The Issues will continue to track all PERA bills and post updates when they’re available.

RELATED: An Update on 2023 WEP/GPO Legislation

Asset/liability study continues

The Board also received an update on its ongoing asset/liability study. That study, which is an in-depth analysis of PERA’s investment portfolio and strategy, will help the Trustees determine if any changes are needed to PERA’s asset allocation, or mix of investments.

The Board’s consultants, Aon, modeled several different asset allocation—some with more risk than the current portfolio and some with less—across thousands of different economic scenarios to project how each option might affect PERA’s investment returns and progress toward its funding goals.

Overall, PERA’s current portfolio is within a reasonable range, Aon said, but there may be some opportunities to further diversify in a way that increases the potential for higher returns without adding unnecessary risk.

Consultants and PERA staff will continue to work on a recommendation and will present more information at the next Board meeting.

The Board’s next regular meeting, which will also include the release of PERA’s 2023 Annual Comprehensive Financial Report and Investment Stewardship Report, is scheduled for June 21.

Long-Term Gain: The 25-year investment that continues to flourish

Posted on by planeteria

Nearly 27,000 Texans moved to Colorado in 2018—that’s more than the population of Golden or Durango. In addition to sending their residents, Texas is sending dollars to Colorado.

Greg Chicota, a Senior Real Estate Portfolio Manager at PERA, said Texas is home to “one of our longest running, largest, and most successful real estate investments.” 

This story, which is 25 years in the making, is an example of how PERA’s investment professionals deliver value over the long term and take seriously their role as stewards of member dollars.

An Opportunity Comes to PERA

Dallas is a sprawling city, with nearly twice the population of Denver living on more than twice the land area. All that space, combined with a southern climate that hovers around 60 degrees in January, means that one thing is certain: lots of golf. More than two dozen courses dot the flat Texas landscape.

In the 1960s, a developer bought a defunct course, about three miles north of city center. But instead of drilling 18 new holes into the ground, they decided to build up. They would transform the more than 300 acres of greens and fairways into dozens of apartment buildings that housed thousands of people. 

The development was so big it garnered its own ZIP code. With apartments nestled among trails and fields (its golf course heritage made these amenities an easy add) and organized activities for residents, this development would soon become a town within a city. Life was more like an idyllic college experience than it was a traditional apartment complex a few blocks away from a freeway. 

For a few decades, the development was buzzing with activity and gained a glitzy reputation. Scenes from the TV show Dallas were filmed there. It ran an ad in Playboy.

But by the mid 1990s, the property was looking tired, and the owners needed financial assistance. An advisor contacted Colorado PERA to see if there was interest in becoming a partner.

Real Estate’s Place at PERA

Real estate is one of five asset classes that PERA manages. Real estate is often is the cornerstone of an individual’s financial life in the form of home ownership, but what makes real estate special for a pension? 

CH Meili, PERA’s Director of Real Estate, said it has similar characteristics to fixed income: “We want real estate to be a real-time income generator to the portfolio. We look for investments that throw off monthly income.” 

CH Meili, PERA’s Director of Real Estate

He said that while this monthly income doesn’t cover the $4.4 billion paid out annually in retiree benefits, the incoming cash every month provides the investment team with reliable flexibility it otherwise wouldn’t have. And, in addition to generating income, the value of property tends to increase over time. “It’s a long-term physical asset, a tangible thing we own, which is unlike most asset classes, where you own a piece of paper.”

How much does PERA have invested in real estate? PERA’s Board of Trustees sets the percentage of Total Fund dollars that can be allocated to each asset class. The long-term allocation to real estate is 8.5%, but it can drift as low as 4% and as high as 13%. At the end of 2019, PERA held more than $4.9 billion of real estate investments.

Compared to some public pensions, PERA devotes a higher percentage of investment dollars to real estate. Does this mean PERA believes real estate will perform better than other pensions expect? Not exactly. Meili said that PERA simply runs a more mature real estate investment portfolio.

PERA has been investing in real estate since the 1980s, internationally since the 1990s. That was relatively early compared to other pensions. With the early start came the chance to build up infrastructure. 

“Twenty-five years ago, commercial real estate wasn’t a typical asset class,” Meili said. “Generally speaking, the rest of the pension and endowment world has caught up to that thesis. So are people invested less than we are? Yes. But do they want to increase that? Yes.”

Chicota said that PERA has found its own sweet spot in real estate investing: “There’s this niche of assets that are too small for the big guys and too big for the small guys. We’ve been very successful operating in that range.” 

Greg Chicota, PERA Senior Real Estate Portfolio Manager

Another distinguishing feature of PERA’s real estate philosophy is the emphasis on direct ownership.

When investing in real estate, you can invest in a real estate fund, which is similar to investing in a mutual fund. You might receive dividends, and the value of your slice of ownership might grow over time. But, despite being an “owner,” you don’t make any day-to-day business decisions. That type of arrangement makes up about 65% of PERA’s real estate investments.

The other 35% consists of direct ownership. These projects can have multiple investors, but, as direct owner, PERA has control over business operations. 

“We operate more like a private business than many pension funds,” Meili said. “Our team isn’t solely allocators of capital—we’re more hands on.”

PERA works with external account advisors who execute the directives set by PERA and perform managerial tasks like paying bills, and managing the local property managers.

This approach allows the real estate team to actively add value to PERA’s investments.

PERA Heads to Texas

When PERA’s investment team decided to become direct owners of the Dallas development, the original premise was to step in, fix up the units, and ultimately sell the property in two to five years. 

“We generally don’t try to be rescue capital or ‘fix and flip,’” Meili said. “That’s not our emphasis. We really think about predictable income over long periods of time.” But Meili said that this property stuck out, especially as Dallas was experiencing “tremendous growth the late 1980s.”

The development’s sheer size turned out to be an attribute that made it attractive as a long-term investment. The development consists of 16 distinct communities, each with its own set of amenities and features. 

“Since 1999, we have let the leases in one community expire, tried to relocate tenants, and redeveloped it into a more efficient project,” Meili said. Each improved community increases the long-term value of the property and increases the monthly income it generates. By the time the entire sequence of communities has been renovated, you can start the cycle again.

While Meili was not with PERA when the investment was initiated, his outlook mirrors the way in which it has unfolded since it began: “I have a really long view on what we’re trying to do at PERA.”

This is the first installment of a two-part story. Read the second part here.

Editor’s note: PERA has chosen to not publish the name of this investment in accordance with Colorado law and PERA’s standard disclosure practices for these types of investments.