News & Announcements

Dominic Garcia, PERA Chief Investment Officer - PERA Prudently Manages Fund

Dominic Garcia, PERA Chief Investment Officer - PERA Prudently Manages Fund

December 20, 2017

A guest editorial from CWA-New Mexico in the November 29, 2017 Albuquerque Journal made suggestions on how the Public Employees Retirement Association (PERA) can improve management of our Trust Fund.

On behalf of the PERA Board and staff, who administers the $15.5 billion Fund for our 90,000 members, we would like to offer a balanced response.

We welcome CWA’s interest in PERA. PERA, and the $1.1 billion in annual benefits we pay to our members, is an economic engine that impacts every corner of our state.

The PERA Board and staff take very seriously our responsibility to ensure the long-term sustainability of the pension system. Our sole focus is to ensure we have sufficient assets to meet promised benefits for retirees, current public employees, and generations of employees to come.

As many will remember, in 2013 the Legislature, the Board, and others worked together on pension reform to meet the difficulties presented by the Great Recession of 2008. Despite adjustments from pension reform, the PERA benefit remains one of the most generous in the country.

PERA recently completed its annual valuation of the health of the system, which indicated that, if we meet our expectations, we would be able to pay 88% of our liabilities over a 30-year period. This is a good, solid position, but we have more work to do to get to our goal of 100% funding and to ensure we more sustainably weather future economic storms.

The Great Recession made it more difficult to meet investment objectives during the past 10 years and PERA was no exception. For the next 10 years, we expect to face continued challenges. There are a few directions we can go to meet these challenges. No matter the direction, our guidepost will always be a steadfast dedication to our mission of long-term sustainability.

CWA advocates for reducing costs. We agree. Within the past few years, PERA has reduced costs and manager fees by over 23%, saving $10 million annually. Additionally, the most recent investment strategy adopted by the PERA Board, reduced risk to our portfolio while also reducing costs.  Our strategy isn’t to always hit homeruns but instead to be steady and thoughtful investors.

However, reducing costs alone won’t achieve long-term investment objectives.  To prudently invest our $15.5 billion Fund requires diversification across many assets and strategies, including low cost indexing—where much of the Fund is currently invested. Cost-effectively including other assets and strategies that can add value is part of an overall sound approach.

CWA would have us ignore these value added strategies and adopt a “boring” approach across the Fund. For the sake of argument, lets’ take their advice and evaluate the results.

Based on current market expectations, a full “boring”, CWA indexed approach at the same level of risk in our current portfolio would earn nearly 1% less in return over the long-term.  Over the next 10 years that could result in a loss of $1.25 to $1.5 billion to PERA, excluding the effect of compounding. Obviously, this moves us farther away from our goal of being 100% funded, would add to our current $5 billion unfunded shortfall, and would be a major step backward.  

CWA uses the example of Nevada as a model for the “boring” approach. However, Nevada’s approach takes more concentrated risk in stocks. Adding more concentrated risk into PERA’s portfolio is not the answer and is contrary to our prudent and steady approach. Further, even Nevada is not fully in the “boring” approach, they too invest in value added strategies.

Meeting the challenges of the next 10 years won’t be as simple as cost cutting and investing in “boring” strategies. To meet our investment objectives we will continue our risk-focused and cost-aware approach, while considering other strategies that produce value add and help ensure a healthy and sustainable PERA for many years to come.

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