DENVER -- The Colorado Public Employees' Retirement Association is performing a risk evaluation of its pension management using a new service offered by a unit of The Northern Trust Co., Chicago, its custodian.
Executives for the $24 billion Colorado pension fund are examining its processes, operating procedures and portfolio structures, spurred by unexpected losses taken at other big investors.
Norman G. Benedict, deputy executive director, said losses at places such as Orange County, Calif., Barings PLC and Morgan Grenfell Asset Management -- a Colorado manager -- have spurred the fund to try to identify the risks it is taking.
"We have processes and procedures, and we don't want anyone getting out of their box," he said.
So far, nothing surprising or unusual has been found, according to Mr. Benedict..
Officials from Colorado and Northern Trust Risk and Performance Services are examining the fund's international equity portfolios and managers, where most of its external management resides, he said.
Their international managers already have been notified that Colorado will be examining investment guidelines and procedures more closely.
Colorado's international equity managers are: Baring Asset Management Inc., Boston; Brinson Partners Inc. and CastleInternational Asset Management Ltd., both of Chicago; and Alliance Capital Management LP, BEA Associates, Morgan Grenfell, Nomura Capital Management Inc., Phillippe Investment Management Inc. and Schroder Capital Management Inc., all of New York.
Mr. Benedict said the review will include its internal management, which involves about 70% of assets.
Colorado will monitor and review both individual internal portfolio managers and the portfolios themselves.
Mr. Benedict said the foundation of Colorado's risk management is Northern's "Alerts" service, an electronic compliance system that flags trades that push portfolios outside of investment guidelines.
"It looks terrific," he said.
Colorado executives can electronically pull up a report any time they want and then print hard copy reports.
Each equity portfolio manager receives a daily risk and performance report that includes information on that manager's and others' portfolios, he said.
The risk service also should prove useful for Colorado's options overlay program, which is internally run, and overlays about $1 billion in assets.
The program has been losing money in recent years, but that is to be expected in such a booming stock market, he said.
To help manage that options overly, Colorado executives use a software system sold by Rampart Investment Management Co. Inc., Boston, he said.
Northern's service includes an examination of the fund's assets using BARRA risk analysis software, according to Mr. Benedict.
Colorado is an alpha tester of the system, and as such isn't paying Northern Trust anything for the assistance, he said.
Colorado officials haven't gotten to the point where the risk service will be used to help set the fund's asset allocation, but that could happen, he said.
The fund's current asset allocation is: 63% U.S. and non-U.S. equities; 13% U.S. fixed income: 12% real estate; 6% alternative assets; 4% real estate; and 2% international fixed income.