Oct. 8, 2021
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Public School Employees' Retirement System
PA PSERS Earns Nearly $15 Billion in Net Investment Income
Board of Trustees considers asset allocation changes
HARRISBURG -- The Pennsylvania Public School Employees’ Retirement System (PSERS) reported a historic one-year $14.8 billion increase in net investment income for the 2020-21 fiscal year.
The net investment gain between July 1, 2020, and June 30, 2021, helped push the System’s total net assets up by $13.5 billion to an all-time high of $72.5 billion, according to audited financial statements released at a public meeting on Thursday of the PSERS Board of Trustees Budget/Finance Committee. The net investment profits, in turn, raised PSERS’ market value funded ratio by more than 9 percentage points to nearly 64% and lowered its net pension liability by more than $8 billion to about $41 billion as of June 30, 2021.
“The strong investment performance and actuarially required employer contributions during the fiscal year has led to unprecedented asset growth that is having positive residual effects on the system’s overall financial health,” PSERS Chief Financial Officer Brian Carl told the committee.
PSERS’ audited financial statements are prepared in accordance with accounting standards promulgated by the Government Accounting Standards Board.
The System’s latest preliminary net of fee performance for the fiscal year was about 24.6%, well above its annual assumed rate of return, which the Board reduced from 7.25% to 7.00% effective with the June 30, 2021, actuarial valuation. That fiscal year return was above the Board’s policy Index by almost 4.0%, and also would be the highest fiscal year investment return since 1985.
Preliminarily, the top five net performing asset classes for the fiscal year were: private equity (57%); midstream energy or MLPs (53.5%); emerging markets public equity (52.2%); U.S. public equity (46.7%); and non-U.S. equity (40.4%). The five lowest performing asset classes were: inflation-protected bonds (4.3%); U.S. core fixed income (3.9%); cash (0.9%); gold (-3.9%); and U.S. long treasuries (-10.4%). PSERS private equity and private real estate investment returns are quarter-lagged, meaning they represent first quarter net performance (January 1, 2021 – March 31, 2021).
Total fund preliminary net performance for the second quarter was 7.3%, above its internal policy benchmark of 5.1%. The top five asset classes were midstream energy or MLPs, private equity, public real estate, U.S. public equity and commodities. The five lowest performing asset classes were: inflation-protected bonds, gold, absolute return, U.S. core fixed income and cash.
Final performance reports for the fiscal year and second quarter are expected to be completed by the end of the month.
In other matters, the Board on Friday approved a $100 million investment commitment to Incline Elevate Fund II, L.P.
The Board also agreed to consider a plan that would change aspects of the System’s asset allocation pending the outcome of an asset liability study that will be publicly presented in December. Changes would include more public equities and a gradual end to the absolute return allocation.
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, PSERS had total net assets of $72.5 billion and a membership of about 256,000 active, 240,000 retired school employees and 26,000 vested inactive members.