HARRISBURG, PA – The Pennsylvania Public School Employees’ Retirement System generated a preliminary net investment return of 19.3% for the 2021 calendar year, according to information released at recent public meetings of the Board of Trustees.
The preliminary return produced net investment income of $12.8 billion. That amount helped push the Fund’s total unaudited net asset value to an all-time high of $75.1 billion as of Dec. 31, 2021.
PSERS operates on a fiscal year basis ending June 30, 2022. Due to the strong performance through December, the System’s estimated net investment returns for the fiscal year currently remain positive during the ongoing market volatility caused by Russia’s military invasion of Ukraine, and higher inflation and other factors.
At Tuesday’s meeting, Interim Chief Investment Officer Bob Devine said staff continues to prudently divest its assets from Russia and Belarus per the Board’s March 3 resolution. Exposure will be reduced to $5 million to $10 million in direct and indirect investments domiciled in those two countries by the end of the month, he said. Another update will be made at the Board’s meeting in June, Devine added.
Also on Tuesday, the Board passed a resolution approving an Investment Office Operational Processes and Procedures Review Report conducted by the Board’s investment consulting firm, Verus.
The assessment, covering a dozen areas across the office’s public and private markets and operational due diligence units, found that staff “have generally implemented solid processes and controls that align with industry best practices [and PSERS Investment Office] has credentialed staff with the relevant industry expertise and/or tenure with the organization to provide the appropriate level of oversight and expertise.” The assessment also suggested improvements that could strengthen some of PSERS’ investment operations, such as instituting additional compliance and monitoring checks on certain types of investment trades and securities.
The Board released three separate investment fee reports. The reports, which will be posted on PSERS website, used different methodologies and covered different time frames.
Verus used fee data published in PSERS 2020-21 Annual Comprehensive Financial Report. Verus said the System’s management fees are “reasonable and typically lower than comparable fees available on the market” compared to other pension funds of comparable size Verus tracks in its own reporting system.
An analysis by CEM Benchmarking said over a 5-year period ended Dec. 30, 2020, PSERS “paid more for some services and … had a higher cost implementation style” than peer funds that CEM tracks.
PSERS internal fee report tallied a combined $697 million in net management fees, partnership expenses and performance sharing agreements for its private markets funds in calendar year 2020. The total was $22 million higher than 2019 in large part because the System paid more in performance fees, which are reflective of the System’s’ overall higher net investment performance for that time period.
In other business, the Board began the process of implementing Funston Advisory Services, LLC (FAS), recommendations from the report, “Transforming Governance at the Pennsylvania Public School Employees’ Retirement System’s – An Independent Governance Review.” The Funston report is posted on PSERS website.
The Board passed Resolution 2022-25 to adopt a Model Governance Manual Framework (“Framework”). This Framework provides a systematic approach for the Board to continue to review and update its Bylaws, Policies, Procedures, and other governance documentation in accordance with the Funston recommendations. The first adopted changes repealed the existing Bylaws: Article IV: Committees of the Board, and implemented the Framework, Article I, Section 4: Committees of the Board, including subsections 4.1-4.8. Additionally, the Board adopted Committee Charters, completing Article II, Sections 1-7, of the Framework.
The Framework, including the Bylaw changes adopted this week, can be found in Attachment A of the Board Resolution 2022-25.
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About the Pennsylvania Public School Employees' Retirement System
PSERS, founded in 1917, began operations in 1919 to oversee a statewide defined benefit pension plan for public school employees. PSERS' role expanded upon the passage of Act 5 of 2017 to include oversight of two new hybrid options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. As of Dec. 31, 2021, PSERS had net assets of $75.1 billion and a membership of about 248,000 active, 242,000 retired school employees and 26,000 vested inactive members.