For Immediate Release
June 11, 2020
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Public School Employees' Retirement System
Pennsylvania Public School Employees' Retirement System Reports Fiscal 3rd Quarter Investment Returns
Diversification strategy minimized losses for the 3rd quarter
HARRISBURG – The Public School Employees' Retirement System was not immune from the economic disruption the coronavirus pandemic generated when scores of government agencies and businesses closed as a precaution against spreading the virus across communities.
As work and quarantine restrictions ease, government stimulus programs take effect, and investor confidence improves, PSERS' investment performance has begun to rebound from the negative earnings experienced in the quarter ended March 31, according to information released Thursday at a public meeting of the PSERS Board of Trustees Investment Committee.
“It was a wild quarter for private and institutional investors the world over and markets could remain volatile through the June 30 end of the fiscal year,” said PSERS Chief Investment Officer Jim Grossman. “We remain vigilant to market changes. Over a decade ago, we re-structured our asset allocation in a way that would prevent the extremely high losses we experienced in the Great Recession, and we succeeded in that regard.”
Entering the fiscal third quarter, PSERS investments were performing well, and the Fund’s total net asset value was $60.5 billion. By the second week of March, coronavirus infection rates and deaths were spiking and social distance lockdowns beginning. Major stock market indexes then crashed by more than 40%, and U.S. unemployment rates soared to their highest peaks since the 20th century’s Great Depression.
The economic upheaval left PSERS with a net investment return for the quarter of negative 8.17%, which reduced the Fund’s total net asset value to $55.8 billion. PSERS’ investment loss compared to a negative 12.54% median return of other public pension funds as tracked by BNY Mellon US Master Trust Universe, and negative 19.60% for the S&P 500 during the same time frame.
Some of PSERS best performing asset classes in the quarter were: U.S. Long Treasuries (up 21.5%); gold (up 4.5%); U.S. TIPS (up 1.9%); and cash (up 0.4%). Those gains did not completely offset larger declines in other asset classes. PSERS’ public equity assets in large, mid- and small-cap indexes were -24.2%. PSERS Master Limited Partnerships (MLPs) were -48.8% and diversified commodities hit -26.6% as economic activity ground to a halt and oil prices plunged.
The mercurial markets did not impact PSERS’ mission of managing retirement benefits for nearly 500,000 active and retired school employees. PSERS strict liquidity policy ensured it had enough cash to pay retirement benefits without interruption during the height of the pandemic, and most of that money remained in the Commonwealth to help local economies.
“If there is a silver lining in this experience for PSERS, it is within those positive asset classes and liquidity,” Grossman said. “They prove how PSERS current investment strategy of diversifying investments across asset classes worked to minimize the higher equity exposure, risk and loss we experienced during the Great Recession of 2007-08. This balanced approach of asset management allowed us to score some investment gains and hold the line on losses while maintaining plenty of liquidity to pay members’ benefits without having to sell assets at inopportune times.”
The Fund’s net asset value has begun to rebound as government stimulus programs, societal re-openings, and improved investor confidence have a positive effect on the investment markets, according to PSERS Chief Financial Officer Brian Carl. As of Monday, PSERS unaudited estimate of total net asset value has increased by over $2.5 billion since March 31.
The Fund’s finances also were helped by Gov. Tom Wolf and the General Assembly fully funding PSERS’ actuarially determined contribution in the 2020-21 fiscal year budget that begins July 1, said PSERS Executive Director Glen Grell. “The governor and legislators deserve enormous credit for seeing past the pandemic-fueled economic crisis and remaining focused on the long-term goal of maintaining proper funding levels for the System.”
Market volatility will not impact the 34.51% employer contribution rate that is set for the 2020-21 fiscal year that begins July 1, 2020.
PSERS’ net-of-fee returns for the period ended March 31, 2020, were: -4.34% for fiscal-year-to-date; 4.26% for three years; 4.44% for five years; 6.91% for 10 years; 5.86% for 15 years; 5.18% for 20 years; 7.53% for 25 years; and 7.91% for 30 years.
PSERS will hold public meetings beginning at 9 a.m. Friday, June 12. Due to social distancing guidelines, the public can listen to the meeting by calling 267-332-8737 and entering the conference ID, 882165889.
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 March 31, 2020, PSERS had net assets of approximately $55.8 billion and a membership of about 256,000 active and 234,000 retired school employees.