Pennsylvania Public School Employees' Retirement System, Harrisburg, posted a net return of 6.68% for the fiscal year ended June 30, below its benchmark of 7.25%, confirmed Steve Esack, spokesman for the $57.7 billion pension plan.
Over the long term, PennSERS returned 8.71%, 6.04%, 9.02% and 8.08% for the three, five, 10 and 25 years ended June 30, respectively. The system returned 9.3% net of fees in the fiscal year ended June 30, 2018.
PennPSERS chief investment officer James H. Grossman Jr. said in a news release that performance was driven by strong returns from private equity, gold, long treasury and risk parity, and that by spreading out investments among more than a dozen asset classes, the plan can better withstand the market uncertainty
"Our first job as fiduciaries is to protect members' pension benefits, and we do that in large part by diversifying our asset portfolio," Mr. Grossman said. "That, sometimes, means PSERS earns a little less in any given year from being less exposed to more volatile equity markets. Reducing equities and diversifying into other assets allows us to better withstand the constant, extreme seesaw effects we have been seeing in the markets."
In August, the PennPSERS board approved these changes to the plan's target asset allocation to go into effect Oct. 1:
Increase its allocation to investment-grade fixed income by 1% to 12%; increase credit-related fixed-income to 12% from 10%.
Reduce risk parity to 8% from 10%.
Increase its use of gross leverage to -20% from -21%.
The board also agreed to raise its exposure to emerging markets equities to 1.5% from 0.5%, and lower its exposure to international equities to 8.7% from 9.7%. In infrastructure, PennSERS agreed to increase private infrastructure to 1% from zero, and reduce MLPs to 3% from 4%. Finally, in real estate, the board agreed to increase public real estate to 2% from 1%, and reduce private real estate to 8% from 9%.