Tag: Pennsylvania PSERS

Pennsylvania Gov. Wolf Proposes $3 Billion Pension Bond

Tom Wolf

Pennsylvania Gov. Tom Wolf unveiled his budget proposal on Tuesday, and it contained a number of pension-related items.

The biggest was undoubtedly the proposed issuance of $3 billion in pension bonds, to be used to pay down the liability of the Public School Employees Retirement System (PSERS).

As is always the case with pension bonds, the state runs the risk of worsening its financial position. But if PSERS’ investment returns exceed the bonds’ interest rates, the state will come out on top.

More from Philly.com:

“A portion of the current unfunded liability for PSERS would be refinanced to take advantage of historically low interest rates, with all savings reinvested to reduce that liability.” Wolf wants to borrow $3 billion and give it to PSERS so it can reduce the recent increase in pension subsidies by school districts and the state treasury.

[…]

Given recent bond prices and Pennsylvania’s bond rating (third-worst of U.S. states after Illinois and New Jersey), rates for taxable Pennsylvania pension bonds “would be about 3.25% (for 10-year bonds) and maybe 4% in 30 years,” Alan Shanckel, municipal bond strategist for Janney Capital Markets in Philadelphia, told me. Pennsylvania would have to pay that percentage and beat its self-imposed 7.5% investment return target each year to make the bond pay.

Pennsylvania’s state-level pension plans are about 62 percent funded, collectively.

Pennsylvania Pension Director Defends Investment Management After Op-Ed By Lawmaker

Pennsylvania

Late last month, Pennsylvania state Rep. Tom Caltagirone and financial advisor Richard Shuker took the state’s pension systems to task over the management of pension assets and fees paid to Wall Street.

[Read their arguments here.]

Now, the executive director of the state’s Public School Employees’ Retirement System (PSERS) has fired back in his own op-ed, defending the system’s investments. An excerpt from the piece, published in the York Dispatch:

1. PSERS is a well-managed, professionally run pension system that is audited by an independent, private sector auditing firm every year and follows all accounting standards issued by the Governmental Accounting Standards Board and all reporting requirements as required by the Securities and Exchange Commission.

2. PSERS received 15 recommendations from the Department of Auditor General’s 2006 Special Performance Audit. PSERS has resolved 13 of those recommendations and the two remaining address governance issues that are long-term projects and are currently in process.

3. Under Section 8521 (a) of the Retirement Code, PSERS is subject to the Prudent Investor Standard, which is a higher level standard than the Prudent Person Standard mentioned in the editorial.

4. Rep. Caltagirone and Mr. Shuker appear to use simple math to subtract the plan’s net asset values at two periods of time and imply that $48 billion is missing. For the 10-year period noted, we paid out $48.7 billion in benefit payments which they fail to even recognize. Evidently they are not aware that PSERS is a defined-benefit pension plan that currently pays out over $6 billion in pension benefits each year to over 213,000 retired members, including over $184 million in pension benefit payments in Berks County, where Rep. Caltagirone’s legislative district is located.

Read the full piece here.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

Pennsylvania PSERS Offloads Nearly $2 Billion of Funds-of-Funds As Part of Plan to Decrease PE Exposure

Pennsylvania

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold its stake in 17 buyout funds-of-funds. The stakes were collectively worth $1.75 billion, and the sale was part of a plan to reduce the system’s private equity portfolio from 16 percent of assets to 15 percent.

From Chief Investment Officer:

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold a $1.75 billion package of private equity investments to secondaries player Ardian.

The deal—one of the largest in 2014—included 17 limited partner stakes in private equity buyout funds-of-funds. Most of these investments focused on US large cap and middle market spaces, according to the public relations firm representing Ardian.

The $53 billion pension fund and Paris-based secondaries firm closed their transaction last month.

“PSERS is endeavoring to reduce its exposure to private equity to 15% of the fund’s size,” said the pension’s CIO James Grossman. “The depth of the secondary market makes possible a large asset sale that will bring us closer to our long-term target.”

Private equity accounted for 16.3% of the fund’s total portfolio as of September 30, 2014, according to PSERS’ documents. The pension began shedding exposure to the asset class last summer, reducing its total portfolio value by $415 million between June and September.

Last month’s deal with Ardian would bring PSERS’ private equity allocation down to roughly 12.7%.

Pennsylvania PSERS manages $53 billion in assets.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg