Penn SERS Returns 3.3% in Q2

Board approves up to $700 million in private equity, multi-strategy real estate commitments.

The Pennsylvania State Employees’ Retirement System (Penn SERS) announced a 3.3% return for Q2 2017, which saw a 7.2% net-of-fees return on investments and provided almost $1.9 billion in earnings to the fund during H1 2017.

The fund earned 12% net-of-fees for the one-year period ended June 30, 2017.

Top asset classes were global public equity and private equity, earning a respective 4.8% and 4.5% for the quarter ended June 30. For the year, the classes earned 12% and 5.1%, respectively.

Real estate and hedge funds each returned 0.8% for the quarter,  and 0.9% and 2.2%, respectively, for the year.

Asset classes were rounded out by fixed-income and cash, with 1% and 0.6% respective returns for the quarter and 3% and 0.8% respective returns for the year.

According to a news release, all returns are reported net of fees. Private equity and real estate returns also lag by one quarter.

In addition, up to $700 million in new commitments to the private equity, multi-strategy, and real estate classes were approved by the board—with the investments being funded from cash subject to successful completion of contract negotiations.

As a follow-on investment to focus on middle-market buyout investments in North American high-growth companies, private equity was approved a commitment of up to $50 million to GTCR Fund XII L.P.

To focus on the purchase or origination of opportunistic credit, special situations, and distressed investments, up to $150 million to TSSP Adjacent Opportunities Partners, L.P. was approved by the board within the multi-strategy asset class. The approval also seeks to engage in direct lending across the credit cycle through adjacent and crossover opportunities within the TSSP platform.

In the real estate asset class, the board approved several commitments, which include:

  • Up to $50 million to SRE Opportunity Fund III, L.P., with up to an additional $50 million to a discretionary co-investment fund. The strategy will focus on opportunistic commercial real estate properties located in the US. This is a new relationship for Penn SERS.
  • Up to $100 million to C-III Recovery Fund III L.P., to invest in value-add commercial real estate properties located in the US. This is a new relationship for Penn SERS.
  • Up to $300 million to Blackstone Property Partners L.P., to invest in core-plus commercial real estate properties located in the US and Canada.  

Within the fixed-income class, the board approved reallocating $200 million from cash to Mellon Capital Management US Aggregate Bond Index.

To establish a pool of transition managers Penn SERS can use for asset restructuring on an as-needed basis, the board will also retain Northern Trust contracting with Loop Capital Markets, Penserra, and Russell Investments.

The board also directed staff to conduct the following three studies:

  • One in partnership with the system’s general investment consultant, RVK, to result in a three-year plan to reduce total investment fees, for the board’s consideration later this year.
  • One in cooperation with Penn SERS and an independent expert consultant, to identify potential cost savings from operational and contracting consolidation with the school employees’ system, and present them to the board for consideration within the next six months. 
  • One in partnership with the administrator of the commonwealth’s voluntary 457 Deferred Compensation Plan for state employees, Empower Retirement, to develop a plan to increase participation in the program among currently eligible employees and to identify the steps necessary to expand eligibility to municipal employees across the commonwealth for the board’s consideration within the next three months.

Tags: , ,