Jim Grossman, chief investment officer of the Pennsylvania Public School Employees’ Retirement System (PSERS), knows what it means to innovate. He’s been with PSERS for more than two decades, serving in various roles and helping the retirement system battle back from a funding crisis. His work on risk parity and other aspects of portfolio construction has made him a thought leader among allocators. As he looks to the future, he sees many opportunities for innovation on the investment side, through technology and talent management. 

Grossman started his career as an auditor. It was there that he interacted with allocators and eventually developed a passion for asset management. At PSERS, he started working on risk and compliance before becoming deputy CIO and eventually CIO. His career path has helped him craft a unique vision for portfolio management—one that is focused on rigorous risk management with a bias toward managing assets in house. Grossman prefers to rely on his in-house investment team to the extent that they have the expertise, and then pays for high-quality, differentiated managers in the areas where they do not. The goal is to put the highest portion of investment return back into the portfolio. So far, some $25 billion  of the retirement system’s assets are managed in house.

Under Grossman’s leadership, PSERS was an early adopter of risk parity. The pension’s program is managed in house and has performed well. “We spent a lot of time from an allocation standpoint evaluating how we could reduce the equity risk of a 60/40 portfolio and still meet or exceed our return target,” he says. “Risk parity portfolio construction concepts allowed us to better balance our total portfolio through the use of modest explicit leverage at the fund level. This portfolio construction not only allowed us to generate the returns we’re trying to achieve but also better manage the risk.” Grossman now shares the lessons he’s learned setting up the program with other pension systems.

Today, Grossman is bringing a similar style of analysis to private markets allocations. PSERS has expanded its use of co-investments in an effort to bring fees down within the alternative investments portfolio. He says that the retirement system has been able to co-invest on a no-fee/no-carry basis—more cost-effective terms. He expects that the pension’s co-investment program will grow over the next five to 10 years.

“We’re constantly evaluating how we can improve and optimize the portfolio in ways that makes sense with the view of our investment professionals and that our board is comfortable with,” Grossman adds. “If you look at it, we’ve been able to evolve the portfolio in a way that makes us differentiated from our peer group.” 

As he looks toward the future, Grossman is focused on stability and resiliency. “We’re looking to build depth in our in-house investment teams and we’re focused more on succession planning so we can ensure portfolio performance over the long term,” he explains. “As we build out the professional staff, I can see us bringing more assets in-house.”

Technology is also playing a bigger role at PSERS, as the pension system recently signed on with a vendor to help improve internal data management and streamline aspects of the investment team’s operations. Grossman says it’s a ground-up process that should bear fruit relatively quickly and is tied into his focus on succession.

—Bailey McCann