The $31.1 billion Pennsylvania State Employees’ Retirement System (SERS) reported that its defined benefit pension plan lost 11.69% during the first quarter of 2020, well off the pace of its assumed annual return of 7.125%.
The top performing asset class during the first quarter was private credit, which returned 2.47%, followed by private equity and Treasury-inflation protected securities (TIPS), which returned 2.4% and 1.43%, respectively, while cash returned 0.38%.
The worst performing asset classes were international developed markets equity and emerging markets equity, which tumbled 23.66% and 23%, respectively, followed by US equity, which lost 22.27%. The system’s real estate investments lost 2.26%, while its fixed-income investments were down 1.49% for the quarter.
In December, the Pennsylvania SERS board adopted a new asset allocation that was designed to reduce costs and increase the allocation to liquid assets that have a lower correlation to public equity markets. During the first months of 2020, the system completed its rebalancing to the new asset allocation, which it said provides increased security and diversification that helps the portfolio withstand market turbulence while paying retirement benefits.
The asset allocation is 48% in global public equity, 16% in private equity, 12% in real estate, 11% in fixed income, 10% in multi-strategy, and 3% in cash.
“We believe it’s important to continue to monitor our portfolio with an eye toward gauging liquidity, as we are doing, ensuring we have assets on hand to meet benefit payment obligations and to also stick to a long-term perspective,” Pennsylvania SERS Executive Director Terrill Sanchez said in a statement.
“In times like these it can be easy for some to deviate from their investment policy statement and long-term plans, but they are designed to keep us focused on the right things through thick and thin.”
Pennsylvania SERS also received its 2019 Actuarial Report from consulting firm Korn Ferry. The results of the actuarial report are used to determine defined benefit plan employer contribution rates and provide information on the assets, liabilities, and funded status of the pension system.
Korn Ferry said that based on the valuation results, Pennsylvania SERS is and will continue to be adequately funded. However, it also noted that Pennsylvania SERS’ 132,731 retirees and 102,850 active participants are a “clear sign” of a mature retirement system.
“The maturity of the SERS population heightens the importance of the mortality assumptions,” Korn Ferry said in its actuarial report. “Thus, the updates to the post-retirement mortality assumptions recommended by the actuary every five years based upon SERS’ actual ongoing mortality experience, have become increasingly critical to the annual valuation process.”
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Tags: Emerging Markets, Korn Ferry, Pennsylvania State Employees Retirement System, Private Credit, Private Equity, TIPS