By David G. Barry
Amid a search
for a new chief investment officer and the implementation of a new asset
allocation strategy, the Pennsylvania Public School Employees’ Retirement
System (PSERS) has accomplished a notable feat: generating a gain for the
fiscal year ended June 30.
The $75.9 billion system said it produced a return of 2.28%, the top return
among its public pension peers as tracked by Aon Investments.
It also joins a small group of public pension funds that recorded positive
returns for the fiscal year. That group includes New Mexico Educational
Retirement Board (ERB), the Oregon Public Employees Retirement Fund
(OPERF), Los Angeles County Employees’ Retirement Association (LACERA), the
Virginia Retirement System (VRS), the Maine Public Employee Retirement
System (MainePERS), Employees’ Retirement System of the State of Hawaii
(HIERS), the Arizona State Retirement System (ASRS), the Washington State Investment Board (WSIB), and the
Houston Firefighters’ Relief Retirement Fund (HFRRF).
PSERS’ preliminary returns for other periods ended June 30, 2022, included a
positive 8.82% for the three-year; a positive 8.47% for the five-year; and a
positive 7.92% for the 10-year. PSERS said its three-year and five-year
preliminary returns were top decile among its public pension peers in the Aon
peer database.
In a statement, PSERS Chair Christopher Santa Maria said that “while we
are pleased for our members and other constituent groups that our investment
return for the fiscal year was a top return among our public pension peers, we
are mindful that markets remain very turbulent and the investment environment
highly uncertain. We are mindful of risk, and remain conservative in our
investment practices, while striving to beat our benchmarks each year and
assumed rate of return of 7% over the long term.”
Thanks
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%. The system has put in
place a plan aimed at bringing it to full funding. It is projected to reach 76%
by 2029.
In releasing its 2021-22 results, PSERS did not disclose its current funding
ratio.
Also in a statement, interim CIO Robert J. Devine said, “given
the market turbulence over this past fiscal year, I am extremely proud of PSERS
returns and the associated hard work and planning by all involved in the
investment process.”
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. PSERS in August said the Justice Department closed the probe and
would not be bringing criminal or civil charges against the system.
At that same time, PSERS began the search for a new CIO. No timeline has been
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.
After a flurry of recent hires, the number of state public systems currently
seeking CIOs is down to three: PSERS, the Employees’ Retirement System of the
State of Hawaii and North Dakoka State Dpartment of Trust Lands.
PSERS’ positive results also come a year after the board approved a new asset
allocation strategy. Under that plan, equities increased to 48% from 39%. It was
at 38.2% in March, the most recent figures released by the system. Fixed income
is to be reduced from 35% to 34%. It was at 31.2% in March. Real assets also
were reduced to 26%. The asset class was at 28% in March. The current
allocation to the asset class is 28.4%. Absolute return, or hedge funds, are
being taken from 8% to zero. It was at 7.4%.
The new asset allocation plan also was implemented after PSERS produced a
strong 2020-21 fiscal years, generating investment returns of 24.5% compared
with the policy benchmark of 20.58%.
Founded in 1917, PSERS has a membership of 248,000 active, 243,000 retired
school employees and 26,000 vested inactive members.
