SERS halts investment activity

The Pennsylvania State Employees’ Retirement System (SERS) passed on making any alternative asset investments earlier this month, citing “the uncertain market environment.”

The state pension fund tabled consideration of proposed re-investments in four funds: Hellman & Friedman Capital Partners VII, TL Ventures VII, Lime Rock Resources II and Novitas Capital IV.

A SERS spokesperson said that it had not specified a time it would reconsider these investments or make any new investments. It has not pursued any sales of existing private equity positions on the secondary market. The board next meets on Jan. 28.

Previously, SERS has contributed copiously to the four managers of these funds, according to public documents.

Hellman & Friedman previously raised $330 million in commitments from the pension fund. Of that, the firm has called down $205.1 million and returned $244.2 million across its four previous funds, as of the beginning of this year.

TL Ventures collected $90 million in commitments for its previous three funds, of which $80.8 million has been called down and $44.8 million returned.

Lime Rock collected $60 million in commitments for its previous three funds, of which $21.5 million has been called down and $2.3 million returned.

Novitas Capital collected $10 million for its previous fund (called PA Early Stage Partners III), of which $5.1 million has been called down and $400,000 returned.

SERS has taken a hit this year, along most other pension funds. It reported an investment return of negative 14.4% through the first three quarters of 2008. The value of its funds at the end of September was $29.3 billion, down from $33.6 billion three months before.

The pension fund reported its venture portfolio, consisting of commitments to 116 funds, was worth $1.49 billion at the end of the first quarter. Its private equity portfolio, consisting of commitments to 207 funds, was worth $4.5 billion.

SERS is over-allocated to alternative assets. At the end of June, 17.8% of its total portfolio was allocated to venture capital and private equity. Its Policy Plan target is 14 percent. It is likely even further from that target now.

Things are going to get worse for the pension fund. “Absent a spectacular market rally between now and Dec. 31, when our fiscal year ends, the SERS Fund’s performance for the full year will be substantially below the performance through Sept. 30,” says Chief Investment Officer John Winchester. —Alexander Haislip