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Pa. PSERS Releases New Investment Expense and Profit-Sharing Reports

12/02/2020

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

Pa. PSERS Releases New Investment Expense and Profit-Sharing Reports

HARRISBURG – The Pennsylvania Public School Employees' Retirement System (PSERS) released two new reports detailing investment-related costs and profit sharing.

The reports, covering the 2019-20 fiscal year and 2019 calendar year, respectively, were discussed at a public meeting Wednesday of the Board of Trustees Investment Committee.

“These reports are produced as part of PSERS commitment to transparently show how we manage the Fund’s assets,” said Charlie Spiller, PSERS Deputy Chief Investment Officer for Non-Traditional Investments. “PSERS’ methods of calculating investment costs and profit sharing, commonly called carried interest, may be different from other pension funds’ because there is no accounting standard for reporting investment fees and expenses for the public pension industry.

“Basically, there is no easy way to have a good peer-to-peer comparison,” Spiller told the committee. “It is very misleading to think a comparison of investment fees and expenses is apples-to-apples when you look at other pension funds.”

The first report covered investment costs related to the fund’s use of internal investment professionals and external managers to invest the fund’s assets of $59 billion during the 2019-20 fiscal year, which ran from July 1, 2019 to June 30, 2020. During that time, overall investment expenses increased from 0.82% to 0.90% of the total fund.

The report showed internal management expenses increased by $4 million to $28 million as the System hired more investment professionals to reduce contracting costs with external managers.  The report also showed that PSERS saves approximately $50 million per year in management fees by managing $27.8 billion internally rather than externally. 

At the same time, some of PSERS external public markets and absolute return managers earned profit shares because their investment performance reached contractually required benchmarks for superior performance. Profit sharing increased by $40 million to $106 million for the fiscal year ended June 30, 2020 over the previous fiscal year.

The second report covered profit sharing/carried interest payments earned by private market managers during the 2019 calendar year. This report, for the first time, provided a breakdown of base fees and profit sharing/carried interest by individual managers across PSERS’ private equity, private credit and private real estate holdings. The report showed overall profit sharing among those sectors increased to $448 million in 2019 from $410 million in 2018 because the private equity and private real estate funds generated very good returns of approximately 11% and 10% respectively, Spiller said.

“Producing this carried interest report is no small feat, especially when you consider we’ve only started creating this detailed document last year,” Spiller said. “In that short amount of time, we refined our internal methods and protocols to add carried interest earned by individual managers, which is a new level of transparency we are proud to have been able to produce for the trustees, members and the public.”

The reports will be posted on the “investment program” link on PSERS’ website, https://www.psers.pa.gov/.