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Pension Funds

PennSERS ups focus on alternatives in new target asset allocation

Pennsylvania State Employees' Retirement System, Harrisburg, approved a new asset allocation for its $30 billion investment portfolio, confirmed spokeswoman Pamela Hile in an email.

PennSERS' new long-term asset allocation targets 48% to global equities (down from its exposure of 53% as of Dec. 31), 16% private equity (up from 14%), 12% real estate (up from 8%), 11% fixed income (down from 14%), 10% multiasset (up from 8%), and 3% cash (unchanged).

Pennsylvania Treasurer Joe Torsella said in statement that he was "deeply troubled by SERS' new asset allocation strategy" to increase its allocation to what he calls "illiquid, high-risk, and exorbitantly high-fee" assets, calling this increase in alternative investments "a real step back" for the pension plan. Mr. Torsella is an ex-officio member of the pension fund board.

Mr. Torsella said PennSERS' new asset allocation strategy would result in 38% — including the multiasset class — of total fund assets in alternative investments, higher than 85% of U.S. pension funds and up from 30% in the current allocation.

"Like everyone, I hope that financial markets will only rise steadily, but it would be dangerous and foolish to plan for that outcome," Mr. Torsella added.

In response, Ms. Hile issued the following statement: "The 10-year asset allocation policy approved by the board (April 25) provides a prudent blueprint to continue to meet the long-term liquidity needs to pay benefits and covenants in various market environments. An in-depth and complete review of long-term liquidity requirements to pay retirement benefits during difficult market conditions is a critical part of the asset allocation process."

She added: "The asset allocation policy is also positioned to diversify the fund and achieve the actuarial assumed rate of return of 7.25% over the long term, within a level of risk deemed prudent by the board."