The Greenwood Village, Colo.-based Fire & Police Pension Association of Colorado (FPPA) is entering the final stages of an approximately year-long effort to change aspects of its asset allocation and by so doing begin a multi-year process to de-risk approximately one-quarter of its overall investment portfolio, or $1.3 billion. The fund anticipates beginning the implementation of the project in July.
“We are spending a lot of time working on asset allocation now, managing separate allocations for different liability pools,” according to Scott Simon, CIO. “We’ve been fortunate to manage one investment pool against several different liability streams—all the pools have been long-term in nature,” he said, explaining that the $5.2 billion Association had been monitoring its asset/liability position with some of its funds “for a while,” but that the decision to make portfolio adjustments was based on fresh analysis conducted by staff about a year ago.
The process will involve three FPPA investment pools initially: a long-term pool of $3.9 billion; a $1.3 billion “glide-path pool” that will be de-risked over time; and a $20 millionshort-term pool.
“In working with our actuary, we found that some of our smaller pools of capital have migrated and are shorter in life. Their lifespan may be maturing in next 10–15 years, so over the 10 years we need to de-risk those plans by taking our existing asset allocation and managing it accordingly in positions that are more appropriate for shorter-termed pools of capital,” Simon explained.
The asset allocation changes will place approximately one-quarter of FPPA’s investments on a glide path to a less risky asset allocation. “The approach is very similar to a target-date fund, where we will gradually take out equity and liquidity risk,” Simon said, adding that currently those pools are invested in in private markets. “So, gradually, we’ll wean them off private markets and into heavily weighted fixed-income portfolios; it will take a decade to wean ourselves off of private markets for the glide-path pool.” The long-term will continue to have a meaningful weight in private markets, he said.
Simon said the fund does not plan to dismiss any incumbent managers as part of the adjusted liability structures. Rather, most of the movement will be accounting-based in nature through unitizing allocations at its custodian bank.