Pa. SERS Pleased By PE, Lowers Target Anyway

The Pennsylvania State Employees’ Retirement System, though happy with the recent return generated by its private equity portfolio, said that due to a strategic shift into fixed income investments, the private equity target allocation will be reduced from 14 percent to 12 percent. That its actual allocation stands at 22 percent suggests the pension fund may have trouble reaching that goal in the near term, absent a secondary sale.

Noting that private equity, venture capital and real estate returns lag by one quarter, meaning the numbers available for those asset classes are actually for the quarter ended June 30, Chief Investment Officer John Winchester said in a prepared statement, “We were particularly pleased to see private equity performance begin to recover as quickly as it did. Every indication is that the private equity portfolio has continued to gain value since June 30. If that trend holds, it should aid the fund’s full-year performance.”

The pension fund ended the quarter with $23.7 billion in assets, up from $22.6 billion at June 30.

But the pension fund also announced that it has adopted an updated strategic investment plan that anticipates a gradual shift over several years, subject to an annual review, toward a larger allocation to fixed income to meet liquidity needs stemming from a projected rise in benefit payouts. The pension paid out roughly $2.4 billion in benefits and expenses in 2009, but that amount is expected to climb to $3.9 billion by 2019.

To create the larger allocation to fixed income, the targets for all other asset classes, including private equity, will be reduced. The LP has not made any private equity commitments this year, since it’s already well over the target allocation, a spokesperson told Buyouts.

In late 2008, the LP made a commitment of up to $25 million to Yucaipa American Alliance Fund II LP, earmarked for control buyout investments in mid- to large-size U.S. distribution/logistics, manufacturing and retail companies.