FPPA Investment Program
We are committed to achieving our long-term investment objectives and to securing the benefits promised to our members by acting in accord with our long-term strategic vision for investment markets.
Objectives
The overall investment objective of the Fund is to “balance and prudently manage the investment needs (risks and return) of all plans participating in the Fund, including the need to eliminate current unfunded liabilities and/or to protect surpluses, if possible.” In connection with this long-term objective, the Fund will attempt to achieve a real (after inflation) return of at least 4% and to meet or exceed its actuarial rate of return objective of 8% over time.
Overview
The Colorado Revised Statutes establish the authority of FPPA’s Board of Directors to invest the assets of the Fire & Police Members' Benefit Investment Fund (the Fund). In exercising its authority to invest and manage Fund assets, the Board is governed by the “Uniform Prudent Investor Act.” The Board’s investment objectives, policies and guidelines are outlined in the FPPA Comprehensive Annual Financial Report. Investment staff and an outside consultant assist the Board in implementing its investment policies.
The Fire & Police Members' Benefit Investment Fund includes the assets of:
- certain tiers of the FPPA Defined Benefit System including
- the Statewide Defined Benefit Plan,
- the Statewide Hybrid Plan - Defined Benefit Component, and
- the Colorado Springs New Hire Plan,
- the Statewide Death and Disability Plan,
- certain Deferred Retirement Option Plans (DROP) which are not self-directed,
- and over 200 affiliated local plans and volunteer plans.
Investment Strategy/Philosophy
Asset Allocation Policy
Asset allocation is a risk management process utilized to determine an optimal long-term asset mix, with a high probability of achieving a specific set of investment objectives. Asset allocation is one of the Board’s most important decisions as studies have shown that asset allocation decisions explain more than 90% of long-term investment results. The Board views asset allocation as a strategic decision. Every two years, the Board conducts a formal asset allocation study to examine the return and risk expectations of several asset classes. The Board uses an optimization model to select a combination of assets designed to achieve the Fund’s long-term return objectives with an acceptable level of risk. The Board then sets specific asset allocation targets and/or ranges for each asset class. See FPPA Target Asset Allocation chart below.
As markets move over time, the actual asset allocation may deviate from the target allocation. If Fund assets are allowed to deviate too far from the target allocations, there is a risk that the portfolio will fail to meet the return objectives set by the Board. The Board will rebalance the portfolio when actual allocations fall outside the target ranges.
TopIn viewing the charts below Members should remember that the Fund invested by FPPA represents ‘defined benefit’ plan assets. The benefits provided by these plans do not fluctuate with changes in the market value of the Fund. Long term, however, investment returns must meet or exceed the actuarial rate of return assumptions for the plans in order to avoid an increase in required contributions to the plans. To learn more about the FPPA investment objectives please refer to the FPPA Comprehensive Annual Financial Report.
Investment Strategy/Philosophy
The Fund’s investment horizon is long-term in nature and accordingly the Board bases its investment strategy on long-term investment trends. While all asset classes have good and bad years, the Fund does not attempt to “time” the market by moving assets into what appears to be the best performing asset class at the time. The investment climate is always uncertain and few investors can consistently predict which asset class will outperform in any given year. To reduce risk and stabilize total Fund returns, the Board constructs a diversified portfolio of stocks, bonds, cash, real estate, and non-traditional investments consistent with its long-term objective. Top
The Board hires professional investment management firms within each asset class to implement the investment strategy of the Fund. In selecting investment management firms, FPPA’s investment department staff and investment consultant establish preliminary screening criteria, such as minimum asset base, performance history, special firm qualifications, and years of experience. Based upon these criteria, staff and the consultant design the appropriate request for proposal (RFP) to be sent to qualified candidates. To see a list of FPPA’s investment managers, please refer to the FPPA Comprehensive Annual Financial Report. Top
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