Want to work at a super innovative public
pension? You’re in luck: PSERS [Pennsylvania
Public School Employees’ Retirement
System] is hiring.
Since taking over as CIO of the $50 billion
pension in 2013, CIO Jim Grossman has brought
roughly $6.5 billion in-house, increasing the
amount of assets managed internally to more than
a third of the total portfolio.
“Where we have the capacity and the competency
to do so, where we believe we can do it
as well or better than an external manager can
do it—we have a bias to manage investments
in-house,” he explains.
The shift wasn’t necessarily motivated by any
concentrated effort to lower fees—Grossman says
he has no problem paying talented active managers
who can generate attractive returns. Instead, it’s
about earning the highest net-of-fee performance.
Some of the asset classes currently managed internally
include fixed income, commodities, and risk
parity. “Those are areas we feel we can do well in,”
But the internal/external divide isn’t just
about where PSERS can do well—it’s also about
where they have resources. Even if Grossman
wanted to do away with external managers
entirely, his current staff of 34 wouldn’t be nearly
large enough to take on the entire investment operations.
As a rule, public funds do not get to dictate
their own staff budgets, and hiring additional
people requires jumping through a few hoops. But
Grossman is willing to jump through them for the
good of the portfolio.
“If you look at the economics of what we’re
already doing and how much money we’re saving
by managing money internally, it’s clear we can
save money and enhance the returns of the fund
by having a larger staff,” he says.
It’s a persuasive argument—and one that
got Grossman permission to take on a few more
staffers next year. Prospective hires: Here’s what
you need to know.
Grossman runs a leveraged portfolio, with
assets split between equities, fixed income, real
assets, absolute return, and risk parity. While
risk parity makes up a 10% allocation, the risk-balanced
approach is also applied at the total
fund level. And the leverage is there to increase
the risk and return profile of PSERS’ less risky
“A lot of funds won’t consider using leverage,”
Grossman says. “We view it as one additional tool
in the toolkit for us in building a balanced portfolio.”
The pension fund also innovated in its new
co-investment program, which provides access
to private equity and private real estate deals at
a low cost. “We get to evaluate deals first, and
then potentially invest, which helps to increase the
return profile of that portfolio,” Grossman says.
“And it reduces the fee profile, because generally
you can co-invest at no-fee, no-carry or half-fee,
It is a public fund job, which comes with its
own constraints: low funding and high transparency,
to name a few. But even while operating in
the (sometimes very critical) public eye, Grossman
has high conviction in his strategy.
“It comes down to how you think about time,”
he says. “We think about it in decades, not months
or quarters. And over time, the portfolio has done
exactly what we’ve asked it to do.”