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PSERS Board Approves Asset Allocation and New Investment Protection Program

11/13/2020

November 13, 2020

For more Information Contact

Steve Esack
Press Secretary
Public School Employees' Retirement System
Phone: 717-720-4770
e-mail:  stesack@pa.gov


PSERS Board Approves Asset Allocation and New Investment Protection Program

 HARRISBURG -- The Board of Trustees of the PA Public School Employees' Retirement System voted Thursday to approve the fund's strategic asset allocation and adopted a new investment protection program.

The Board's strategic asset allocation approval establishes the guidelines for how PSERS' investment professionals invest assets of the $59 billion fund while continuing to ensure the Fund has enough liquidity to pay members' benefits. The new allocation maintains the Board's long-term commitment to holding a diversified portfolio while shifting around some of those assets to account for market trends. Changes to public markets allocations, such as equities and fixed income, are expected to be fully implemented by April 1, 2021. Changes to certain private markets allocations will occur over the next three years.

"We know making changes to a multi-billion-dollar asset allocation is not as simple as turning on or off a light switch," said PSERS Chair Chris SantaMaria. "These transitions must be done deliberately and prudently over time to safeguard against being significantly impacted by potential volatility in financial markets."

A summary of the changes between the current allocation and the newly approved allocation shows:

Asset Class
Current Target Allocation
New Target Allocation                   Change
Public Equity19%27%8%
Private Equity15%12%-3%
Public Fixed Income32%27%-5%
Private Fixed Income10%8%-2%
Public Real Assets17%17%0%
Private Real Assets9%11%2%
Absolute Return 10%8%-2%
Cash6%3%-3%
Explicit Leverage-18%-13%5%
Total100%100%

During Thursday's public meeting, the Board held a discussion about how the asset allocation could potentially impact the Fund's assumed rate of return.  The impact of the approved changes to the asset allocation plan will be considered when PSERS completes a 5-year Experience study on all of its actuarial assumptions, including the assumed rate of return, in first half of 2021.   

In addition to the asset allocation changes, the Board adopted a new investment protection program, called tail-risk mitigation. The tail risk mitigation program serves as a hedge that aims to protect the Fund from investment losses should markets steeply plunge as occurred at the onset of the COVID-19 pandemic earlier this year. The program will be managed both internally by PSERS' investment professionals and externally by to be determined investment managers.

"The asset allocation provides the majority of the investment returns for institutional investors," said PSERS Chief Investment Officer Jim Grossman. "Our tail risk mitigation program is like homeowner's insurance; for the premium spent it provides protection against significant negative events. That's why the Board's decision to add the tail-risk mitigation program will be so beneficial in enhancing our defenses of those returns, especially during the uncertainty caused by the ongoing pandemic."

The next meetings of the Board of Trustees and its committees will be held on Dec. 2 and 3.

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 June 30, 2020, PSERS had net assets of approximately $59 billion and a membership of about 256,000 active and 240,000 retired school employees.