Pennsylvania State Employees’ Retirement System, Harrisburg, approved a new two-year investment plan on Wednesday that includes reducing the number of alternatives managers it uses.
The plan calls for performing a review of all investment manager fees to determine if they are aligned with PSERS’ best interests and are reasonable relative to market rates; re-establishing real estate as a stand-alone asset class; improving real estate’s risk/return profile by establishing clear long-term target allocations designed to increase the expected return, liquidity, diversification and inflation hedging; and establishing an annual pacing range (for the duration of the investment plan) of new commitments for real estate between $100 million to $200 million to less liquid, non-core closed-end real estate funds.
Real estate allocations had been included in the real assets portfolio. The pension fund has a 10% exposure to real estate, and a target of 12%.
The retirement system also is looking to reduce the number of real estate and private equity managers it invests with in order to build long-term strategic partnerships and improve its ability to negotiate lower fees. PSERS is looking to invest with two to four real estate managers or funds per year, and with seven or eight private equity managers or funds per year. It is targeting real estate commitments ranging from $50 million to $100 million (up from $25 million to $30 million) and individual private equity commitments of $100 million to best-in-class funds. It will increase the annual pacing (for the duration of the two-year plan) of new commitments for private equity to $750 million from $500 million to meet its long-term target allocation of 16%.
The $26.5 billion pension plan also reported its investment performance through Sept. 30.
The fund reported a return of -3.2% net of fees for the third quarter and a return of -0.5% net of fees year-to-date through Sept. 30.
Third-quarter returns by asset class were: 5.4% for alternatives, 0.2% for cash, -0.2% for fixed income, -3.2% for real assets, -3.3% for hedge funds and -9.6% for global public equities.
A full copy of the investment plan is available on PSERS’ website.