HARRISBURG, PA – The PA Public School Employees' Retirement System (PSERS) today announced the Fund's post-Great Recession investment strategies are working in the current volatile markets. PSERS achieved an 8.00% return for the 10-year period that ended December 31, 2018, exceeding its long-term investment earnings target of 7.25% by 0.75%.
Much of the Fund's performance since the Great Recession is attributed to Public and Private Equities, and Private Credit investment policy decisions made a decade ago according to PSERS Chief Investment Officer James H. Grossman Jr.
"Our 10-year performance improved due to the fading impact of the Great Recession on the 10-year return. PSERS former asset allocation had more equity risk than our current, more diversified portfolio. PSERS current asset allocation is better situated to weather volatility in the equity markets, generate returns which meet or exceed its 7.25% earnings assumption over the long term, and maintain a lower equity risk profile than our former asset allocation," Grossman said.
The PSERS Board, in consultation with PSERS Investment Professionals and consultants, decided after the Great Recession to increase diversification and restructure its asset allocation to significantly reduce equity exposure. Prior to that change, PSERS had nearly 70 percent of its assets invested in equities, which caused the Fund to experience large losses similar to other pension fund peers during the Recession-impacted 2008-2009 fiscal year.
Now, PSERS asset allocation is reversed: 30% is invested in public and private equities and the rest is spread among 13 different asset classes. That diversification reduces exposure and risk in up-and-down equity markets and during another potential financial calamity like the housing and credit crises of the Great Recession.
"Diversification significantly helped PSERS achieve a positive return in 2018 when equities and other public pension funds had a negative year and it has also assisted in longer-term performance," Grossman said. "As a large institutional investor, PSERS has a structural advantage in sourcing private market opportunities not available to the general public. Asset classes such as private equity, private real estate, private credit, and hedge funds all had positive returns for PSERS in 2018."
Additionally for the periods ended December 31, 2018, PSERS' investments earned:
*+0.66% for the calendar year,
*-1.53% for the fiscal year-to-date,
*+7.76% for the three-year,
*+5.97% for the five-year,
*+8.00% for the 10-year,
*And +7.61% for the 25-year periods.
Since the end of the calendar year, investment markets have rebounded in 2019 and PSERS' current fiscal year-to-date return also improved and is now in positive territory.
Today's positive investment performance news builds upon PSERS' funding progress that was released at its December 2018 Board meeting.
After the December meeting PSERS Executive Director Glen Grell commented, "Full funding is making a positive difference. Since the 2016-2017 fiscal year, the Commonwealth has remained committed to paying the full actuarially required rate which is needed to pay down the existing pension debt."
The increase in funding from school employers and the Commonwealth has already had a positive impact on PSERS. The 56.5% actuarial funded ratio as of June 30, 2018 marks a significant turning point for the System as future funded ratios are now projected to rise; reversing years of decline. On a market value basis, PSERS' funded ratio, which began to improve in 2016, also continued to increase as of June 30, 2018.
Additionally, large annual employer contribution rate increases are in the past. The impact of the historic Great Recession of 2008-2009 has now been fully recognized in PSERS' actuarial value of assets and the employer contribution rate. Pension costs have stabilized and future projected employer rate increases are now expected to be more in line with inflation.
More detailed investment performance data as of December 31, 2018 is available on the "investment program" page on PSERS' website at: psers.pa.gov
About the Pennsylvania Public School Employees' Retirement System
PSERS is the 15th largest state-sponsored defined benefit public pension fund in the nation. As of December 31, 2018, PSERS had net assets of approximately $54.9 billion and a membership of over 256,000 active school employees and over 233,000 retirees.
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