By David G. Barry
The Pennsylvania Public School Employees’ Retirement System (PSERS) has begun a search for chief investment officer – a move that comes eight months after its prior CIO stepped down and just days after the U.S. Department of Justice closed its investigation of the $75 billion pension fund.
No timeline was given for the search, which is being overseen by Hudepohl & Associates. The 15-person PSERS board will make the final selection. The CIO oversees a team of 70.
PSERS’ search comes at a time when five other state public pension systems are seeking CIOs: the Employees’ Retirement System of the State of Hawaii (ERS), the Idaho Public Employee Retirement System, the Minnesota State Board of Investment, the New Hampshire Retirement System, and the Kansas Public Employees Retirement System.
Robert J. Devine, the system’s fixed income managing director, has served as PSERS’ acting CIO since December, when James H. Grossman Jr. transitioned to a senior advisor role prior to retiring in May. Devine has been with PSERS since 1998.
Grossman and then-Executive Director Glen R. Grell moved to retire in November after an investment calculation error led to the federal investigation.
In the posting for the CIO position, PSERS said the Justice Department closed the probe and would not be bringing criminal or civil charges against the system. A PSERS spokesman, Steve Esack, said there was no correlation between the probe closing and the CIO announcement. Rather, Esack said the board had sought to first fill the system’s executive director and chief counsel roles.
In June, Terrill J. Sanchez was named executive director. She had served as interim director since Grell’s retirement. Previously, she had retired as executive director of the $39 billion Pennsylvania State Employees’ Retirement System on Dec. 31.
And more recently, the board named Joseph J. Indelicato Jr. as a special advisor and said he would assume the role of chief counsel once Pennsylvania licensing requirements are complete. PSERS has been without a permanent chief counsel since October 2021 due to what the system said was a “staff requirement.” Two interim attorneys have led the agency’s internal legal department since then.
Indelicato most recently served as general counsel of the New York State Teachers’ Retirement System (NYSTRS). He was with NYSTRS for 21 years, the last eight as general counsel.
The largest public employee pension system in Pennsylvania, PSERS has a membership of more than 515,000.
Due to underfunding for the 15 years prior to fiscal year 2017, PSERS as of June 30, 2021, had an unfunded liability of $44 billion and a funded ratio of 59.6%. PSERS has put in place a plan aimed at bringing it to full funding. It is projected to reach 76% by 2029.
The plan has not yet released its results or funded ratio for fiscal year 2021-2022.
In fiscal year 2021, PSERS generated investment returns of 24.5%, net of fees, compared with the policy benchmark of 20.58%.
The PSERS board approved a new asset allocation in October 2021 but has not set a date for the full transition. Under that plan, equities increased to 48% from 39%. It is now at 38.2%. Fixed income was reduced from 35% to 34%. It is currently at 31.2%. Real assets also were reduced. Now at 28%, it is set to decline to 26%. The current allocation to the asset class is 28.4%. Absolute return, or hedge funds, are being taken from 8% to zero. It is currently at 7.4%.
PSERS earlier this month also approved $350 million in a new investment to Caspian Keystone Focused Fund Ltd., a public fixed income commitment. It also will transfer two other existing Caspian accounts – totaling up to $275 million – to the new fund. Additionally, PSERS approved $97 million to a private equity fund, TDR Capital V L.P., and $100 million to a private real estate fund, EQT Exeter Industrial Value Fund VI, L.P.