Under Interim CIO James Nolan who is serving upon the departure of Bryan Lewis, $29.6 billion Pennsylvania State Employees’ Retirement System (SERS) reported third quarter and year-to-date investment returns of 0.32% and 12.39% respectively. The SERS board also recounted its progress in addressing transparency and stress testing-related concerns, as well as hiring a new CIO.
Real estate and fixed income were the top performing asset classes for the fund during the quarter that ended Sept. 30, returning 2.06% and 1.8%, respectively. Private equity earned 0.97% while multi-strategy and cash returned 0.57% each. Global public equity was the worst-performing asset class, losing 0.47% for the quarter.
Despite underperforming the rest of the asset classes for the third quarter, global public equity was the top performer for the first three quarters combined, returning 16.27%. Multi-strategy was next, returning 11.7%. Fixed income and real estate earned 8.9% and 8.76%, respectively, for the first three quarters. Private equity and cash earned 7.16% and 1.82%, respectively.
Pennsylvania SERS’ board also said it has taken “significant steps” to address several of the transparency and stress testing-related objectives outlined in last year’s Public Pension Management and Asset Investment Review Commission (PPMAIRC) final report. The report identified potential cost savings of nearly $10 billion over the next 30 years for the state’s two largest retirement systems.
The board has been working closely with investment staff and has reviewed and approved standard formats for specialty consultant performance reports, staff memos, consultant memos, and a recommended template for manager presentations. All will be posted on SERS’ website.
It also approved a stress testing and risk assessment report that reviewed a wide range of investment-related, contribution-related, and demographic-related risks that could affect the long-term health and stability of the fund.
“The need for greater transparency and stress testing were among the key findings of the pension review commission’s final report,” Terri Sanchez, executive director for Pennsylvania SERS, said in a statement. “Since then, our board members have worked closely with staff to review, prioritize and act on those recommendations. We believe the actions taken today represent significant steps in the ongoing effort toward greater public transparency and accountability.”
The board also adopted the SERS Defined Benefit Plan Investment Policy Statement based on the recommendation of its investment committee. The statement outlines the investment philosophy and practices of Pennsylvania SERS and serves as the governing policy for the management of the system’s defined benefit assets. The board also decided to adopt the policy target asset allocation set forth in the statement.
The target asset allocation is intended to achieve the retirement system’s investment return assumption (7.125% effective Dec. 31), reduce investment management fees, and increase liquid assets. This would aim to maintain enough funds to pay retirement benefits and obligations during prolonged periods of market decline and potential budget constraints.
In other Pennsylvania SERS’ business, the board hired executive search firm EFL Associates to help it find a new CIO, which it said it hopes to have in place by the summer of 2020. Former CIO Bryan Lewis left the retirement system in August to become CIO of US Steel.
The board also approved new commitments of up to $150 million in new private equity investments, including up to $75 million with Clearlake Capital Partners VI, L.P. and up to $75 million with Insight Partners XI, L.P. Both commitments are follow-on investments with existing general partners.