By Muskan Arora
CIO Scott Simon looks to David Swensen, former Yale Endowment CIO when it comes to running the $7.5bn Fire & Police Pension Association of Colorado.
The system’s portfolios resemble endowments rather than typical pension plans, as over half the portfolio is dedicated to non-traditional strategies such as private equity, real estate, real assets and hedge funds.
This strategy has been working well for Simon, who has been growing investments in private markets, which sits at a 32% allocation.
It has been seventeen years since Simon joined the pension plan as a CIO and grew the portfolio from $3bn to $7.5bn.
Colorado F&P returned 15.3% for the year ending September 30.
The plan continues a shift towards illiquid investments including private equity and private credit among others. The shift has meant that the system is able to utilize its smaller size to place bets on niche strategies with smaller fund sizes.
Simon has raised bets on alternative assets, as he works towards hiking the system’s private market allocations to 34% from 32%.
For the private markets portion, the system puts $450 annually to work, which equates to around 20 funds and co-investments.
The CIO introduced direct co-investment activities six years ago targeting a ticket size of $3m to $5m per investment. The plan is also considering co-investment funds to get a broad exposure to diversified managers on the “large end of the market” and “create beta within PE at lower fees.”
But global stocks – mostly big US companies including Microsoft and Nvidia – make up almost 40% of the portfolio.
Transparency and trust have widened the accessibility to VC managers who a decade ago wanted to stay clear from the “politics and the potential risk for disclosure of their information” by public pension plans.
Within the VC space, the CIO looks towards healthcare and technology sectors as VC managers have gotten more comfortable working with institutional investors.
While most allocators, including Simon, have started investing in AI through their real estate and venture capital sleeve, the CIO’s efforts to integrate AI into decision making continue to grow.
“The next step is evaluating technology which synthesizes manager information and in a pool of managers, identifies the consistency and difference in their comments,” Simon told Markets Group.
This contributed to the CIO ramping up his allocations to infrastructure, which previously didn’t hold much space in the portfolio.
Post pandemic, transactions for office spaces declined significantly as most employees continue working from home, however the CIO predicts that office investments will recover at some point.
At which point stabilization in pricing occurs, Simon expects these spaces will translate into good opportunities.
The CIO finds great opportunities within the real estate debt portfolio, and within the credit side focused on distressed opportunities.
FPPA is also a signatory to the Principles for Responsible Investment — the United Nations-supported network of investors working to promote sustainable investment through the use of ESG principles.
The CIO views ESG primarily from a “risk reduction” lens.
However, as AI becomes the talk of the town, the CIO is mindfully investing in technology focused on supporting clean energy which includes “providing opportunities for any business and/or infrastructure project to tackle, gathering energy in a clean way, in a sustainability way”.
Further, while selecting managers for its private markets allocations, the CIO considers team turnover, alongside vetting newer firms and teams.
Alignment of interest and great track record are key while hiring a new manager, however a “greedy” manager and uneven growth of firm are red flags to the CIO.
The CIO currently serves on the Board of the $65bn Colorado Public Employees Retirement Association.
