colorado pera · capital markets review december 31, 2019 the announcement of a “phase one”...
TRANSCRIPT
2019 Performance ReviewWith First Quarter 2020 Update
June 19, 2020
Colorado PERA
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Capital Markets Review
December 31, 2019
The announcement of a “phase one” U.S.-China trade deal, progress on the U.S.-Mexico-Canada agreement (USMCA)
and easing Brexit fears led to a resurgence in risk appetite and boosted equity markets. Accommodative monetary
policies from major central banks meanwhile continue to provide further support for risk assets.
During the fourth quarter of 2019, global equities returned 9.0% with non-U.S. stocks outperforming U.S. stocks.
Emerging Markets equities were the strongest performers over the quarter, benefiting from the “risk-on” environment
and the thawing of trade tensions. Within the U.S. equity market, information technology and health care were the top
performing sectors during the quarter. As economic data stabilized over the quarter, more defensive sectors
underperformed with Utilities (+1.5%) and Consumer Staples (+4.7%) being the worst performing sectors. Small cap
stocks, across both value and growth equity styles, outperformed relative to their large and mid-cap peers on a one-
year basis. Across all capitalizations, growth stocks outperformed value stocks over the fourth quarter of 2019.
The Bloomberg Barclays U.S. Universal Index returned 0.5% during the fourth quarter. Corporate bonds returned the
most while government bonds returned the least. High Yield bonds outperformed bonds across different credit qualities.
Short duration bonds outperformed all bonds of intermediate and longer maturities, as the yield curve steepened over
the quarter with yields falling at the short end of the curve and rising at longer maturities
ReturnsFourth
Quarter
One
Year
Three
Years
Five
Years
Ten
Years
U.S. Stocks 9.0% 30.9% 14.5% 11.2% 13.4%
Non-U.S. Stocks 9.2% 21.6% 9.8% 5.7% 5.2%
Global Stocks 9.0% 26.4% 12.1% 8.3% 8.9%
U.S. Bonds 0.5% 9.3% 4.3% 3.4% 4.1%
Notes:
U.S. Stocks = DJ U.S. Total Stock Market Index
Non-U.S. Stocks = MSCI All Country World ex-U.S. Index IMI
Global Stocks = MSCI All Country World Index IMI
U.S. Bonds = Bloomberg Barclays U.S. Universal Index
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Total Fund Asset Growth12/31/2014 – 12/31/2019
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
($M
)
Asset Allocation History5 Years Ending 12/31/2019
Global Equity Fixed Income Real Estate Private Equity Opportunity Fund Cash
5
Total Fund Performance – Trailing PeriodsDecember 31, 2019
* March 31, 2004, represents the inception of the Policy Benchmark as the primary performance objective for PERA.
6.2%
20.3%
11.1%
8.4%9.1%
7.7%8.5%
6.0%
19.8%
10.2%
7.6%8.8%
7.2%
4.7%
16.4%
8.7%
6.4%
7.9%6.7%
8.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Fourth Quarter One Year Three Years Five Years Ten Years Since 3/31/2004* Since 1/1/1995
Total Fund Policy Benchmark Public Fund Universe (Mean)
Returns shown are net of fees.
6
Total Fund Performance – Calendar Year Periods
15.5%
18.8%
0.0%
-8.1%
-12.2%
23.8%
13.8%
9.6%
15.6%
10.0%
-26.0%
17.4%
14.0%
1.9%
12.9%
15.6%
5.7%
1.5%
7.3%
18.1%
-3.5%
20.3%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Returns shown are net of fees.
7
Peer RankingsDecember 31, 2019
The rankings are based on a universe of 165 public pension funds over $1 billion with aggregate assets of $2,965.3 billion compiled by BNY Mellon
Performance & Risk Analytics in conjunction with Investment Metrics as of 12/31/2019.
Returns shown are net of fees.
8
Risk-Adjusted ReturnDecember 31, 2019
9
Asset Class PerformanceDecember 31, 2019
Fourth
Quarter
One
Year
Three
Years
Five
Years
Ten
Years
Since
3/31/2004
Global Equity 9.8% 29.5% 14.1% 9.7% 10.5% 8.1%
Global Equity Custom Benchmark 9.1 26.8 12.3 8.4 9.7 7.5
Fixed Income 0.2% 9.2% 4.3% 3.4% 4.3% 4.6%
Fixed Income Custom Benchmark 0.2 8.7 4.3 3.4 4.1 4.4
Real Estate 3.5% 8.4% 9.7% 11.3% 12.7% 9.5%
Real Estate Custom Benchmark 1.4 4.9 6.7 8.5 11.0 7.5
Private Equity 3.4% 13.7% 13.0% 11.3% 12.2% 11.9%
Private Equity Custom Benchmark 9.5 28.3 18.4 13.9 16.2 12.6
Opportunity Fund 2.6% 6.4% 6.8% 5.4% 4.1% --
Opportunity Fund Benchmark 3.0 11.2 7.3 5.6 5.3 --
Cash 0.5% 2.4% 1.8% 1.2% 0.8% 1.7%
ICE BofAML U.S. 3-Month Treasury Bill Index 0.5 2.3 1.7 1.1 0.6 1.4
Returns shown are net of fees.
10
Performance AttributionDecember 31, 2019
11
Performance AttributionDecember 31, 2019
12
Global EquityDecember 31, 2019
13
Fixed IncomeDecember 31, 2019
14
Real EstateDecember 31, 2019
Fourth
Quarter
One
Year
Three
Years
Five
Years
Ten
Years
Real Estate 3.5% 8.4% 9.7% 11.3% 12.7%
Core 4.5 9.0 10.8 12.1 13.3
Value-Added 3.2 9.0 10.7 13.2 15.9
Opportunistic 3.4 12.9 12.1 11.5 12.4
Real Estate Custom Benchmark 1.4 4.9 6.7 8.5 11.0
*The other category consists of healthcare properties, land for development, and mixed use/other.
21.9%
32.7%
10.6%
28.9%
0.7%
5.2%
33.4%
25.7%
16.1%
20.3%
0.1%
4.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Office Apartment Retail Industrial Hotel Other*
Property Type Allocation
COPERA Actual NCREIF-ODCE
15
Private EquityDecember 31, 2019
Total Private
Equity
(10 Year)*
Total Private
Equity
(15 Year)*
Total Private
Equity
(Since 01/01/1983)
Internal Rate of Return (IRR) 14.4% 10.8% 10.5%
Custom Benchmark 10.7 8.4 7.4
*Vintage Years
16
Opportunity FundDecember 31, 2019
Fourth
Quarter
One
Year
Three
YearsFive Years
Ten
Years
Opportunity Fund 2.6% 6.4% 6.8% 5.4% 4.1%
Opportunity Fund Benchmark 3.0 11.2 7.3 5.6 5.3
Total Fund ex-Opp Fund Benchmark 6.1 20.2 10.4 7.7 9.0
Committed ($M) Invested ($M) % Funded
As of 12/31/2019 $ 2,978 $ 1,709 57%
$2,978
$1,709
3.6%
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First Quarter 2020 Update
18
Capital Markets Review
March 31, 2020
A decade-long bull market came to an abrupt halt as the COVID-19 outbreak in China turned into a global pandemic.
After reaching all-time highs in mid-February, global equities sold off sharply as infection numbers grew and
governments worldwide ramped up virus containment measures. With much of the economy shuttered, a deep global
recession appears to be inevitable despite unprecedented fiscal and monetary stimulus measures.
During the first quarter of 2020, global equities returned -22.4%, with U.S. stocks outperforming non-U.S. stocks by
3.1%. Within the U.S. equity market, the information technology sector was the strongest performer, posting returns of -
12.1%. The energy sector was the weakest performer, falling 51.6%, as a result of the sharp drop in crude oil prices
amidst the coronavirus outbreak. Performance was negative across the market capitalization spectrum over the
quarter. Overall, both medium and small cap stocks underperformed large cap stocks. Over the last twelve months,
value stocks continued to lag their growth stock equivalents significantly.
The Bloomberg Barclays U.S. Universal Index gained 1.3% during the first quarter. Government bonds were the best
performers, while corporate bonds were the worst performers. Performance was positive across higher credit qualities
with high yield bonds underperforming all credit qualities. Longer duration bonds outperformed all bonds of lower
maturities, as the yield curve shifted downward with yields falling across maturities.
ReturnsFirst
Quarter
One
Year
Three
Years
Five
Years
Ten
Years
U.S. Stocks -21.0% -9.3% 3.9% 5.7% 10.1%
Non-U.S. Stocks -24.1 -16.3 -2.3 -0.7 2.1
Global Stocks -22.4 -12.7 0.8 2.4 5.8
U.S. Bonds 1.3 7.2 4.4 3.4 4.0
Notes:
U.S. Stocks = DJ U.S. Total Stock Market Index
Non-U.S. Stocks = MSCI All Country World ex-U.S. Index IMI
Global Stocks = MSCI All Country World Index IMI
U.S. Bonds = Bloomberg Barclays U.S. Universal Index
19
Total Fund Performance – Trailing PeriodsMarch 31, 2020
* March 31, 2004, represents the inception of the Policy Benchmark as the primary performance objective for PERA.
-11.0%
-1.3%
5.2% 5.3%
7.5%6.8%
7.9%
-12.5%
-3.6%
3.9%4.3%
7.0% 6.2%
-11.8%
-4.1%
2.8%3.3%
6.2% 5.8%
7.3%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
First Quarter One Year Three Years Five Years Ten Years Since 3/31/2004* Since 1/1/1995
Total Fund Policy Benchmark Public Fund Universe (Mean)
Returns shown are net of fees.
Note: Real Estate, Private Equity, and certain Alternatives Investments market values and returns are reported on a quarter lag. The performance
numbers shown represent December 31, 2019, values. Real Estate, Private Equity, and certain Alternatives assets are generally revalued once a year in
the fourth quarter. As such, performance for time periods less than one year as reported in the first, second, or third quarter may show large
outperformance or underperformance for these asset classes that is not representative of performance over longer periods.
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Asset Class PerformanceMarch 31, 2020
First
Quarter
One
Year
Three
Years
Five
Years
Ten
Years
Since
3/31/2004
Global Equity -20.2% -8.7% 3.5% 4.2% 7.5% 6.4%
Global Equity Custom Benchmark -22.4 -12.4 0.9 2.6 6.4 5.7
Fixed Income 3.0% 9.0% 5.0% 3.7% 4.4% 4.7%
Fixed Income Custom Benchmark 3.1 8.9 5.0 3.7 4.3 4.5
Real Estate(1) 3.5% 8.4% 9.7% 11.3% 12.7% 9.5%
Real Estate Custom Benchmark 1.4 4.9 6.7 8.5 11.0 7.5
Private Equity(1) 3.4% 13.7% 13.0% 11.3% 12.2% 11.9%
Private Equity Custom Benchmark 9.5 28.3 18.4 13.9 16.2 12.6
Alternatives(1) -0.7% 3.9% 5.7% 5.2% 4.1% --
Alternatives Custom Benchmark -7.7 -1.7 3.6 3.8 4.0 --
Cash 0.4% 2.0% 1.9% 1.3% 0.8% 1.7%
ICE BofAML U.S. 3-Month Treasury Bill Index 0.6 2.3 1.8 1.2 0.6 1.4
(1)Real Estate, Private Equity, and certain Alternatives Investments market values and returns are reported on a quarter lag. The performance numbers shown
represent December 31, 2019, values. Real Estate, Private Equity, and certain Alternatives assets are generally revalued once a year in the fourth quarter. As such,
performance for time periods less than one year as reported in the first, second, or third quarter may show large outperformance or underperformance for these
asset classes that is not representative of performance over longer periods.
Returns shown are net of fees.
21
Performance AttributionMarch 31, 2020
22
Appendix
23
Appendix: Definitions*
Policy Benchmark – A combination of 53.5% of the Global Equity Custom Benchmark, 23.5% of the Fixed Income
Custom Benchmark, 8.5% of the Real Estate Custom Benchmark, 8.5% of the Private Equity Custom Benchmark, 5%
of the Alternatives Custom Benchmark, and 1% ICE BofAML U.S. 3-Month Treasury Bill Index.
Global Equity Custom Benchmark – The MSCI All Country World Investable Markets Index (Net) with USA (Gross).
Fixed Income Custom Benchmark – The Bloomberg Barclays U.S. Aggregate Bond Index.
Real Estate Custom Benchmark – The NCREIF Fund Index – Open End Diversified Core Equity plus a performance
hurdle of 50 basis points annually.
Private Equity Custom Benchmark – The MSCI ACWI IMI (Net) with USA Gross plus 150 basis points annually.
Opportunity Fund Custom Benchmark – A market value weighted aggregate of the benchmarks of the HFRI FOF:
Market Defensive Index, CPI plus 400 basis points, and the Public Markets Benchmark plus 150 basis points,
determined by the respective aggregate market values at the beginning of the year of each of the sub-asset classes in
the Opportunity Fund.
Total Fund ex-Opp Fund Benchmark – A combination of 56.3% Global Equity Custom Benchmark, 24.7% Fixed
Income Custom Benchmark, 8.9% Real Estate Custom Benchmark, 8.9% Private Equity Custom Benchmark, and
1.1% BofA ML 3 Month Treasury Bill Index.
Cash Performance Benchmark – The ICE BofAML U.S. 3-Month Treasury Bill Index.
Public Fund Universe – A universe of public pension funds with aggregate assets over $1 billion compiled by BNY
Mellon Performance & Risk Analytics in conjunction with Investment Metrics.
Private Equity Investment IRR Benchmark – An opportunity cost benchmark that shows the return that would have
been achieved had the cash invested in a private equity portfolio been invested in the MSCI ACWI IMI (Net) with USA
Gross plus 150 basis points annually. Under this methodology, hypothetical shares in a public market index are
purchased on the same dates and in the same amounts as contributions made to the private equity fund, and
hypothetical shares are sold on the same dates and in the same amounts as distributions received from the fund. The
Benchmark IRR is calculated using the cash flows and residual value of the hypothetical public index shares.
*Only the current composition of benchmarks are shown above. The complete history of each benchmark can be found in the
quarterly performance report.
Benchmark descriptions shown reflect benchmarks as of December 31, 2019.
24
Canada
France Germany Italy
Japan
Spain
United_Kingdom
United_States_of_America
0
50
100
150
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100
Days Since 100th Case
7 D
ay M
AV
New
Cases p
er
1,0
00,0
00 P
ers
ons
Canada
France Germany
Italy
Japan
Spain
United_Kingdom
United_States_of_America
0
5
10
15
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Days Since 100th Case
7 D
ay M
AV
of D
eath
s p
er
Day p
er
1,0
00,0
00 P
ers
ons
Evolution of Daily COVID-19 Cases from 100th Case
US Starts Social Distancing Measures,
March 15 2020, and ramps up testing
The trajectory of COVID-19 cases will be key in determining how long containment
policies remain in place and how the economy fares.
Source: Aon, ECDC
US Starts Social Distancing Measures,
March 15 2020, and ramps up testing
Source: Aon, ECDC
Spike in US
deaths caused by
reclassification of
deaths
25
-40
-20
0
20
Feb Mar Apr May
Date
% D
eclin
e f
rom
Jan
13
20
20
Ro
uting
Re
qu
ests
Fro
m D
rive
rs
region
Canada
Germany
United States
An Economic Catastrophe
Q1 GDP figures are indicating a sharp economic
contraction, with worse expected in Q2
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
GD
P G
row
th
(Qo
Q U
na
nn
ua
lize
d)
US Eurozone Consensus Forecast
Source: Bloomberg
Source: Apple. 7-day moving average shown.
Apple data point to transport activity picking back up
as lockdowns ease
The “Great Lockdown” looked to have been effective
so far in containing the spread of COVID-19, but at
the expense of what’s likely to be the worst recession
in generations
The scale of the economic damage is apparent
The unemployment rate is 14.7% in the US,
the highest since The Great Depression.
Eurozone GDP growth in Q1 was the worst on
record, with France recording its worst growth
figure since 1945
The length and severity of the recession will depend
on how quickly things can get back to normal
Germany, parts of the US, and a few other
countries have started to relax some of their
lockdown measures
Getting back to normal would likely take a
long time. Non-essential trips may continue to
be avoided even if official lockdown measures
ended
A severe “second wave” outbreak is a risk,
and if the virus starts escalating again another
lockdown may be needed
Sharp falls in trips outside
as the lockdown started
26
Central Banks to the Rescue? Not in a Public Health Crisis
Past performance is no guarantee of future results.
-1
-0.5
0
0.5
1
1.5
2
US UK Japan ECB Canada
Central Bank Policy Rates Through 2020
1/1/20
4/22/2020
12/31/20
Source: Aon, Bloomberg OIS Pricing
A second emergency rate cut by
the Fed on 3/15/2020 takes us
back to 0 to 25bps range
Where possible central banks around the world have eased policy, but with rates being low there is a
limit. Central Banks are also increasing liquidity operations as funding markets come under pressure.
On March 23, the Fed launched unlimited QE and expanding QE into bond markets where it has not
been deployed before.
UK cut rates by 50bps on
3/10/2020, and on 3/18/2020 cut
rates to 0.1% the lowest ever in
the UK.
Canada cut rates by
50bps on 3/4/2020, 50bps
on 3/13/2020, and 50bps
on 3/27/2020.
0
250
500
750
1,000
US UK Japan Eurozone
US
$bn
New Quantitative Easing MeasuresGovernment Bonds MBS Flexible
“QE Infinity”:
purchases of
unlimited amount of
treasuries, MBS,
corporate bonds
and student loans
The BoJ is extending
purchases of everything from
government and corporate
bonds to ETFs
Source: Aon
27
Fiscal Packages Are Large Across the G20
USA:
State of Emergency declared
releasing $50bn to states to
deal with virus
Payment of federal taxes
deferred by 90 days, freeing
up an estimated $300bn for 90
days.
Senate passes the Houses
stimulus package which
provides paid sick leave to
workers effected by COVID-
19, but there are some limits.
A $2 trillion stimulus package
approved in the US. Phase 4
is being discussed.
A further $400 billion has been
approved and signed into law
to replenish funds for small
businesses
28
Market Reactions
Equities are off their lows
Collapse in bond yields across the yield curve,
but yields are off their lows.
VIX has eased from spiking
Past performance is no guarantee of future results. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect any fees
or expenses. Investors cannot directly invest in an index. Please see Appendix for index definitions and other disclosures.
29
Market Reactions
Credit spreads have come in
but still higher than average. High yield yields are moving higher,
investment grade yields are lower
The dollar has
been volatile
Past performance is no guarantee of future results. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect any fees
or expenses. Investors cannot directly invest in an index. Please see Appendix for index definitions and other disclosures.
30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
S&P 500 MSCI AC
World
US Credit
Spread
Int. Credit
Spread
Lng.
Credit
Spread
High yield
Spread
US Credit
Yield
Int. Credit
Yield
Lng.
Credit
Yield
High yield
Yield
US 10Y
Yield
US 30Y
Yield
20 Y
ear P
erce
ntile
Ran
k of
Val
uatio
n
Market Valuations Have Reacted to a Volatile Environment
5/22/2020
12/31/2019
Markets have re-rated extremely fast, but there is some uncertainty around how much value there is. Forward looking
measures of value may be using stale estimates, as the economic impact is so uncertain. These remain volatile.
Expensive
Cheap
Source: Aon, Factset
Notes: Valuations used: Equity markets = Next Twelve Month PE Ratio, Credit Spread = Option Adjusted Spread, Credit Yield = Yield To Worst, Treasury Yield = Yield To
Maturity
Past performance is no guarantee of future results. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect any fees
or expenses. Investors cannot directly invest in an index. Please see Appendix for index definitions and other disclosures.