How We Invest
The members of the ACERA Board of Retirement are ultimately responsible for diversifying ACERA’s investment assets, which is how we control the risk of investing. The Board members ensure that investments are made in a variety of securities, in an assortment of companies, and in a range of regions of the world. They also ensure that assets are managed by professional investment managers.
Our Investment Team
To accomplish these tasks, the Board, ACERA’s Chief Investment Officer Betty Tse, and her nine-person team of investment professionals (who are county employees) work with an investment consulting firm to establish ACERA’s Investment Plan and Policy. They share a fiduciary responsibility to ACERA’s fund and ACERA’s members, so they take a long-term, low risk investment strategy. This highly regulated responsibility is vested in ACERA by state laws and ACERA’s participating employers. To understand this prudent strategy, you’ll first need to understand why and how ACERA invests:
ACERA Works for its Members
If you’re currently working as a public employee, you’re going to need money to pay for your life after retirement. This is why the county started the pension fund (ACERA) in 1948. You pay part of your wages into ACERA’s fund every time you get paid, and your employer also makes a contribution on your behalf.
ACERA could simply save this money in a bank account for you until you retire, but then it would be difficult to pay the level of retirement benefits you earned with just the interest earned from these two contributions. This is where investing comes in.
What Is an Investment?
People and organizations all over the world want to borrow money to take their business to the next level. For instance, a high-tech company in Silicon Valley needs money to develop a new medical device, while a municipality somewhere in the country may need money to improve the roads and build a new library. The high-tech company might sell shares in the company in the form of stock, and the city might issue and sell bonds to investors to be paid back at a future date. If you invest in or loan these entities your money, you’ll get investment return or interest (more money) for the use of your money if the endeavor goes well.
Managing Risk
In order to manage risk, ACERA invests in a diverse group of investments called asset classes. ACERA’s investment team, investment consultants, and Board of Retirement together strategically determine the portions of the fund to allocate to the classes of assets in order to balance risk and return.
Hiring the Experts—Investment Managers
Once ACERA decides what percent of the fund to invest in each asset class, ACERA doesn’t just go out and start buying. We hire investment managers who are experts in particular types of asset classes to make the investments for us.
These investment managers are selected through a rigorous and well-thought-out due diligence process: our investment consulting firm and ACERA staff conduct thorough research to identify the best managers—including comprehensive in-person interviews and site visits—before recommending these investment managers to the Board of Retirement, which reviews and has the final authority on whether to hire an investment manager or not.
A Prudent Process
ACERA’s investment team continually monitors the performance of these investment managers. Many of these managers are subject to ACERA’s periodic review process, which requires the managers to review not only their investment performance, but also their strategy, philosophy, and outlook on the markets, and present to the Investment Committee of the Board of Retirement. Managers that do well are retained. Managers that don’t do so well are put on a watch list where they’re put on notice, and can ultimately be terminated by the Board, all in accordance with ACERA’s pre-established Investment Policy.
ACERA’s ultimate investment goals are to maximize its investment returns to pay benefits and defray expenses of administration, while at the same time minimizing risk by investing in diverse assets (not keeping all our eggs in one basket) and by diligently monitoring the performance of the assets we are invested in. Because the investment market has its ups and downs, ACERA takes a prudent and long-term approach toward investments. This means we don’t make rash decisions. We establish long-term investment strategy and implement it methodically, monitor the success of the strategy prudently, and modify our approach as needed.