Collett's biggest concern regarding public pension plans is the "politicization" of investments.
"Public pension plans are trusts established for the benefit of their members, who are a diverse group sharing a common goal: the desire for the plan's assets to grow at a reasonable, risk-adjusted rate based on the demographics of the plan, in a legal and ethical manner," he said. "As a fiduciary, this should be your sole focus."
And while controversies surrounding environmental, social and corporate governance have mushroomed in recent years, Collett does not think that's made it more difficult to function as a CIO.
"Throughout my tenure, I've observed such issues arise and then recede," he said. "The first notable ones I recall involved stances on tobacco and both anti-gun and pro-gun issues. This ties back to my initial concern: our focus should be on growing the plan's assets at a reasonable, risk-adjusted rate, in line with the demographics of the plan, while adhering to legal and ethical standards."
As for ESG, Collett said it's only one of the many factors to consider when evaluating an investment opportunity.
Collett said he is not at all surprised by the strong emergence of private equity/alternative assets in the allocations at pension funds.
By the time LAGERS began exploring private markets and hedge funds, the trend toward these asset classes had already started in the broader market, he noted. "I'm not surprised by the current prominence of private markets in pension fund allocations, as it aligns with the principles of good diversification," he said.
"The disparity between the number of private and public companies is striking ... There are around 2,600 public companies and 17,000 private companies with revenues exceeding $100 million. This demonstrates the breadth of opportunities in the private sector. Therefore, a CIO aiming for a well-diversified portfolio should indeed consider a substantial allocation to private companies.''
LAGERS' current allocation to private markets is roughly 50%, which includes private credit, he added. "This is above our target allocation, primarily due to the denominator effect and the sluggish transaction market we experienced in 2022 and 2023," he said.
Collett also noted that he is not overly concerned about the recent inclination toward private assets among institutional investors. "Most investors are underrepresented in private markets when you compare it to the distribution of the U.S. economy between private and publicly traded markets," he added.
Looking back at his tenure at LAGERS, Collett is especially proud of the fact he assembled a "highly talented team, both in terms of investment expertise and operational efficiency" and that he feels fortunate to be a part of it. The investment team has eight people and manages 30% of assets internally.
Regarding other hot-button issues, Collett said that LAGERS is monitoring bitcoin but does not currently view it as an asset class and has not invested in it. He said he supports the views of hedge fund manager Cliff Asness, the founder, managing principal and CIO at AQR Capital Management. "To paraphrase, he does not believe bitcoin constitutes a real investment, yet due to its significant attention, he holds a very small portion in his personal portfolio," Collett said. "I believe this approach is appropriate for me personally, but not for a public pension plan."