By Muskan Arora
While it is tempting to offload underperforming or tail-end funds within private equity, the $75B Pennsylvania Public School Employees’ Retirement System (PSERS), focused on selling higher-quality and well-known funds in the secondaries market for success.
Focusing on the “flow-names” — top-tier funds with strong reputations and clearer valuation paths — attracted stronger demand and eventually led to better execution.
“Ultimately, the transaction helped reduce exposure to aged assets and brought the portfolio back in line with our long-term allocation targets, while maintaining exposure to core managers and high-conviction strategies,” said James Del Gaudio, head of private markets at PSERS, in an exclusive interview with Markets Group.
Working with advisor Campbell Lutyens and consultant Aksia, the pension plan refreshed its private equity portfolio, freeing up capital to address the underweight allocations in public equities and core fixed income.
Prior to deciding on the secondary sale, the pension plan had informal discussions with a range of market participants — secondary funds, net asset value lenders, other limited partners, and sell-side advisors.
“Assets held for 10-plus years tend to have diminished return potential thereafter — often underperforming the portfolio’s cost of capital,” added Del Gaudio. “That realization prompted us to take a closer look at how we could more actively manage aging exposure within the private equity portfolio.”
To reduce risk, PSERS sold some of its “younger” funds, while keeping some that still had room to grow. Even after its secondary sale, the fund remains committed to private equity, with a pacing plan of $750M to $1B in 2025.
“We’re focused on rebalancing to core managers, expanding co-investments, and exploring alternative approaches to accessing venture capital,” said Del Gaudio. “To support these goals, we’re expanding our sourcing initiatives and co-investment origination capabilities to increase portfolio fee efficiency.”
Special situations and buyouts are back in focus, and the team is increasingly opportunistic. Alongside executing a major secondaries sale, the pension plan is doubling down on private credit and infrastructure as it re-shapes its portfolio for a post-pandemic and rate-recalibrated ecosystem.
PSERS manages roughly $25B across private equity, private credit, infrastructure and real estate. Unlike most pensions that split these strategies across siloed teams, the fund has built what it calls a “pan-private” structure.
Infrastructure: Rising energy demand
Infrastructure, still PSERS’ newest private portfolio, is rapidly emerging as a key strategic pillar. Early digital infrastructure commitments — particularly in data centers — have benefited from the rise of cloud and artificial intelligence tools. But PSERS is looking further into the sector, including in power generation, distribution, and storage.
“AI may be the buzzword, but the fundamental driver here is energy,” said Del Gaudio. “We’re seeing electricity demand spike in industrial corridors that haven’t grown in decades. That’s a real investable trend.”
The fund expects to hit its 5% infrastructure allocation target by 2026, moderating annual commitments from $800M to $400M. It remains focused geographically on North America and Western Europe, with a growing co-investment program that provides lower-fee access to sector specialists and niche strategies.
Private credit: Finding true drivers
Private credit — another major allocation for PSERS — has shifted dramatically in the post-pandemic, higher-rate environment, said Del Gaudio, noting in 2020 and 2021, deal terms got aggressive
Underwriting discipline has become the defining trait of a successful private credit manager, he said. “When rates surged, many borrowers ran into coverage issues. Managers who stayed disciplined through the exuberance came out ahead.”
Del Gaudio believes the long-term role of private credit remains intact, fueled by the evolving role of banks in reaction to evolving regulatory pressures, alongside elevated levels of private equity dry powder, increasing allocations to the PE asset class, and growing demand for non-bank lending in asset-backed sectors. PSERS has leaned into asset-based lending and is actively exploring niche opportunities such as aviation finance and infrastructure-linked credit.
Post-pandemic shift
The COVID-19 pandemic catalyzed several long-term shifts in the portfolio. PSERS pulled back from Asian private credit strategies and is now more cautious around global supply chains, favoring nearshored or regionally anchored investments.
“The pandemic exposed the fragility of global sourcing,” said Del Gaudio. “We now place far more emphasis on geographic resilience and regulatory predictability.”
Office real estate remains a question mark, with PSERS adopting a cautious stance and spending more time analyzing lease structures and asset-level cashflows. “The market still hasn’t reached consensus on the future of office,” he added. “That’s a warning sign for underwriters.”
