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PA Schools cuts PE target as part of asset allocation reboot

The $59bn pension's decision comes two years after a state commission recommended it cut its allocation to illiquid investments.

Pennsylvania Public School Employees’ Retirement System has reduced its private equity target and moved more into public equities.

PA Schools private equity target is now 12 percent, down from 15 percent previously. The change, announced in a statement on the pension’s website, has been in the works for a while, as Buyouts previously reported. The $59 billion pension also increased its public equity allocation from 19 percent to 27 percent.

PA Schools’ actual private equity allocation as of March 31 was 16 percent. Chief investment officer Jim Grossman said last month that staff would likely look into secondaries sales as a way to right-size the PE portfolio and there would likely be a “three-year glide path” to get there.

PA Schools pumped a great deal of capital into private equity during the 2000s, which have been “challenging” vintage years, Grossman said at October’s meeting.

The new asset allocation came two years after a state commission report strongly critiqued both PA Schools and its sister system, Pennsylvania State Employees’ Retirement System. The report recommended PA Schools re-evaluate its allocation to private assets, which the report called a “significant outlier,” and reduce the allocation to a “more appropriate” level.

In a recent interview with Buyouts, PA Schools board member Frank Ryan said he felt that using private equity to chase higher returns in hopes of resolving an underfunding issue is a bad reason to be in the asset class. He also said a high allocation to illiquid investments could present problems should there be a need to sell public equities to make pension payments.

Action Item: Read the 2018 commission report on Pennsylvania’s pension systems here.