Pennsylvania SERS Restructures Fixed Income Portfolio

By David G. Barry

The Pennsylvania State Employees’ Retirement System (SERS) has restructured its $7.7 billion fixed income portfolio, a move that allows it to be essentially at its newly approved asset allocation policy and leaves it – at least for now – with extra cash.

Through transactions totaling $4.6 billion, SERS moved completely out of Old Fixed Income – which had accounted for 12.2% of its portfolio – and beefed-up its Core Fixed Income and Nominal U.S. Treasuries segments. The system previously only had $2.1 billion, or 5.9% of its portfolio, in Core, a segment which had a 15% target. It now has $5.2 billion, or 14.4%. Treasuries, meanwhile, have gone from 0.3% to 2.5% with a transfer of $835 million. This, in turn, puts it closer to its 5% target for the sector.

These moves also resulted in SERS receiving $676 million in cash. This means that SERS’ total cash is now $1.39 billion, putting it at 3.8% of the portfolio. The plan’s target is 2%.

In remarks to the investment committee, SERS CIO Jim Nolan said the cash will be available for “future rebalancing.”

In May, SERS’ board adopted its Enhanced Asset Allocation Policy, which combined the plan’s existing 4% private credit and 12% private equity allocation into a single 16% private equity allocation. The board also gave the CIO authority to align the fixed income portfolios with the enhanced policy.

After the moves, the only segment in which SERS is outside its stated allocation goal is private equity. As of May 27, it was at 19.7%, nearly 4% above its target.

As of May 27, SERS had total assets of $36.6 billion. It ended 2021 with $40.2 billion.