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PA PSERS Board Approves Asset Allocation Changes


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Steve Esack
Press Secretary
Public School Employees' Retirement System
Phone: 717-720-4770

PA PSERS Board Approves Asset Allocation Changes

Changes simplify the allocation and continue planned cost reductions.

HARRISBURG – The Board of Trustees of the Pennsylvania Public School Employees' Retirement System (PSERS) voted today to adjust its Strategic Asset Allocation (SAA) in response to significant ongoing market changes.

These revisions reduce net leverage, add fixed income allocations, and continue planned reductions to external investment management fees.  The fee reductions, totaling an annual estimate of $130 million, would be derived by continuing to prudently lower the private markets target allocation to 30% (presently 36%) and trimming the absolute return target allocation to 0% (presently 4%).

"PSERS has successfully applied a modest amount of leverage over the years to improve diversification and enhance long-term return expectations," Chief Investment Officer Ben Cotton said the Board meeting. "However material changes to underlying return expectations make it practical to reassess our present targets."   

Rising interest rates have made the cost of leverage higher and by extension, the benefits of such leverage less certain.

"Reducing net leverage and making the planned reductions to private markets and absolute return allocations also allows us to simplify the overall asset allocation and reduce risk," Dr. Cotton said. "At the same time, we can preserve the fund's diversification and liquidity while still maintaining sufficient long-term return expectations to hopefully meet or surpass our 7.00% annual assumed rate of return."

These represent interim changes that would be made by Oct. 1 to the SAA, which sets the guidelines for how PSERS' investment professionals and external managers invest the fund's $71.9 billion on behalf of the System's active and retired members. Generally, the Board expects to reassess the SAA every three years, but may consider adjustments during the interim should material changes occur to the underlying economic and capital market assumptions.

"The decision the Board made today to adjust the SAA demonstrates PSERS strength and flexibility to adjust to an ever-evolving market environment," said PSERS Trustee Jason Davis, Chair of the Investment Committee.

In other business, the Board voted to approve a $300 million investment in Brookfield Strategic Real Estate Partners V and a $200 million investment in TCI Real Estate Partners Fund IV LP.

PSERS received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA) for the fiscal year ended June 30, 2022 Annual Comprehensive Financial Report (ACFR).  This was the 40th consecutive year that PSERS has received this award, which recognizes excellence in governmental accounting and financial reporting.

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 benefit options consisting of defined benefit and defined contribution (DC) components and a stand-alone DC plan. As of March 31, 2023, PSERS had total net assets of $71.9 billion and a membership of about 248,000 active, 247,000 retired school employees and 27,000 vested inactive members.



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