PE Assets: $6 billion
Overall Assets: $26 billion
Chief Investment Officer: Anthony Clark
It has been a challenging time at the $26 billion Pennsylvania State Employees’ Retirement System. The fund faces increasing obligations to pensioners, it is over-allocated to private equity, and it has lost several members of its private equity team.
Against this backdrop, the pension has been seeking buyers for up to $3 billion of its private equity portfolio, a source told sister Web site peHub. Such a sale would represent about half the system’s $6 billion in private equity investments, which in 2010 amounted to 26 percent of the pension’s total assets.
A second source said PennSERS was talking with two secondary advisors, Cogent Partners and UBS. However, a spokesperson for PennSERS denied that it was in talks with the two firms about a sale.
A sale, if it does materialize, would not be a surprising development. Last year, PennSERS said that it planned to reduce its allocation to alternative investments (private equity and venture capital) to 15 percent from 25 percent. It also planned “a greater allocation to fixed income investments to meet liquidity needs,” according to a statement it released in December, 2010. PennSERS said at the time it expected “to pay out about $2.6 billion in benefits and expenses in 2011 but that is expected to jump to $4 billion in 2020.”
One consequence of a shrinking commitment to private equity is a smaller staff to manage it, and it seems that PennSERS’s private equity team has read the writing on the wall. As many as four private equity portfolio managers have already left, and more turnover could be on the way, according to one source.
Recent departures include PennSERS’s head of alternatives, Bruce Feldman, who retired this summer, and Jeffrey Burton, an alternative portfolio manager who left to join the Pennsylvania Public School Employees’ Retirement System.
In a separate development, the PennSERS board announced that it hired the StepStone Group as its alternative investment consultant. The move ends PennSERS’s relationship with Cambridge Associates, which had been its alternative consultant for nearly two decades.
In a statement, Nicholas Maiale, PennSERS’s board chairman, said the move was needed because “it is time for a fresh look,” adding that “the markets, our demographics and the maturity of the Fund are all changing.”
The move follows the February hiring of Anthony Clark as PennSERS’s chief investment officer.
StepStone won the alternative consulting assignment over Hamilton Lane, which many thought had the inside track on the contract since it was based in suburban Philadelphia.