PSERS | Pension360

Pennsylvania Teachers’ Pension Commits $150 Million to Industrial Real Estate

The Pennsylvania Public School Employees’ Retirement System (PSERS) has invested $150 million in the Cabot Core Industrial Fund.

From IPE Real Estate:

Pennsylvania Public School made the commitment based on strong operating fundamentals for industrial properties, with the sector enjoying its lowest vacancy rates since 2001 and rents rising 4% year on year.

The fund is Cabot’s first core vehicle, having previously invested in industrial properties through value-add funds.

Pennsylvania Public School participated in the funds with a $100m commitment to Cabot’s Industrial Value Fund III in 2008 and $75m to the Industrial Value IV in 2013.

Cabot has been active in Atlanta, Chicago, Dallas, Florida, Los Angeles, New Jersey and Pennsylvania.

Courtland Partners, which advises Pennsylvania Public School, said the fund would target net returns of 8-10%, with an initial current yield of 5-6%.

Around 70-80% of returns are expected to come from current income, with the balance from appreciation.

PSERS managed $51.9 billion in assets as of September 30, 2014.

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 Lawmaker To Propose Shale Tax to Fund Pensions

A Pennsylvania representative is planning to introduce a bill in January that would levy a 3.5 percent tax on companies that frack in the state. The revenues – estimated to be $400 million annually – would then go to paying down the Public School Employees’ Retirement System’s (PSERS) unfunded liabilities.

From Main Line Media:

The way state Rep. Kate Harper sees it, a shale tax could ensure drillers are paying their fair share and help solve the state’s pension crisis at the same time.

Harper, R-61, began circulating a memo Dec. 17 to get co-sponsors for a bill she plans to introduce in January calling for a 3.5 percent shale tax, with the proceeds estimated at $400 million annually, going toward the state’s $32 billion unfunded Public School Employees’ Retirement System liability.

“If we don’t get pensions under control, everybody’s school taxes are going up,” Harper said. “My bill adds a severance tax to the existing impact fee and uses it for education, specifically pensions.

“I believe the majority of Pennsylvanians are OK with fracking,” she said, but they want two things: regulation of the industry to ensure the water stays clean; and, if the money is needed that the drillers pay their fair share.

The bill is similar to one introduced last session by state Rep. Madeleine Dean, D-153, that Harper co-sponsored but didn’t even get out of committee, in that it would keep the current impact fee in place, she said.

Those fees are used to address infrastructure and other impacts in communities where drilling takes place, and to contribute to several statewide environmental programs, a press release from Harper says. So far, the impact fee has generated more than $630 million.

[…]

“If the tax is too high we will lose jobs, so I’m trying to have them pay at a reasonable level and not discourage them so they leave the state,” Harper said. The 3.5 percent tax she is proposing “is not onerous on the drilling industry” and “compares favorably with the 5 percent tax in West Virginia,” she said.

PSERS was 63.8 percent funded as of June 30, 2014.

Pennsylvania Public School Pension Commits $200 Million to Senior Housing, Other Real Estate

The Pennsylvania Public School Employees’ Retirement System (PSERS) has committed a total of $200 million to two different real estate funds, one of which will invest in senior housing and assisted living properties. The other fund will invest in REITs.

Details from IPE Real Estate:

The fund has made $100m commitments to Prudential Real Estate Investors’ Senior Housing Partnership Fund V and Almanac Realty Investors’ Securities VII fund.

Laurann Stepp, senior portfolio manager at Pennsylvania, said the fund was attracted to senior housing in the US, where she said there are 19m 75+ seniors – an age group expected to grow in the next decade.

Stepp said Pennsylvania was also motivated by the fact senior housing construction had stalled since 2007 as a consequence of a lack of financing during the financial crisis.

PREI is targeting a $500m raise for Fund V, which will focus on US for-rent, for-profit, private-pay independent living, assisted living and memory care assets, with up to 20% to be invested in Canada.

The fund will invest mainly in income-producing assets with minimum 50% occupancy.

Some investments may be structured as forward equity commitments on newly constructed properties.

Almanac, which is looking to raise $1bn for Securities VII, has so far received $765m in commitments, according to sources.

The fund, which will provide growth capital for either US real estate operating companies or public REITs, will structure its investments as either convertible debt or preferred equity.

Targeted returns for Securities VII are 12-14% net IRR, with no leverage.

PSERS managed $53.3 billion in assets as of June 30, 2014.

Pennsylvania Teachers’ Pension Puts $2 Billion of Private Equity Stakes Up For Sale

The Pennsylvania Public School Employees’ Retirement System (PSERS) is attempting to sell a significant portion of its stakes in various private equity funds.

The pension fund is looking to sell off $2 billion of such investments, a total that amounts to about 22 percent of its private equity holdings.

PSERS is putting the stakes up for sale to cash in on high prices.

From Bloomberg:

Pennsylvania Public School Employees’ Retirement System is offering about $2 billion of private-equity fund stakes for sale after prices for such investments reached the highest levels since the 2008 financial crisis

The $53.3 billion system, known as Psers, hired Dallas-based investment bank Cogent Partners to manage the sale process, said three people with knowledge of the matter, who asked not to be identified because the information is private. The amount for sale is less than a quarter of the plan’s $8.7 billion private-equity holdings as of June 30.

“We are considering a secondary sale since we are overweight in our long-term allocation to private equity and have been since coming out of the financial crisis,” said Evelyn Tatkovski Williams, a spokeswoman at the plan.

The pension system’s level of private-market investments was near its 21 percent target as of June 30, according to data on the Psers website. Private markets includes private equity, private debt and venture capital.

Bill Murphy, a managing director at Cogent in New York, declined to comment on the sale process.

The pension plan reported a net investment return of 3.3 percent for private markets during the quarter ended June 30 and 14 percent for the latest fiscal year.

PSERS manages $53.3 billion in assets and is 63.8 percent funded.

Photo by Simon Greig via Flickr CC License

Major Pensions Commit To Asia Private Equity Fund

A handful of pension funds have recently committed over $200 million collectively to the Baring Asia Private Equity Fund VI.

Pension systems making investments in the fund include the Texas County & District Retirement System, the Pennsylvania Public School Employees’ Retirement System, the Arizona Public Safety Personnel Retirement System and the San Francisco City & County Employees’ Retirement System.

From the Asian Venture Capital Journal:

Texas County & District Retirement System (TCDRS) has committed $50 million to Baring Private Equity Asia’s sixth pan-regional fund, which recently reached a first close of $3.2 billion.

The pension system, which had $24.5 billion under management as of June 2014, invested $40 million in Baring Asia’s previous fund. Earlier this year, it also allocated $40 million to the private equity firm’s first dedicated regional real estate vehicle, which is looking to raise $500 million.

Baring Asia Private Equity Fund VI has already exceeded its initial target of $3.2 billion. AVCJ was previously told that the vehicle has a hard cap of $3.85 billion, not including the GP contribution. Fund V closed at $2.46 billion in January 2011, beating its original target of $1.75 billion after just six months in the market.

Other disclosed investors in Fund VI include Pennsylvania Public School Employees’ Retirement System (PSERS) – also an LP in Baring’s previous three funds – which has committed $100 million, and San Francisco City & County Employees’ Retirement System, which is putting in up to $50 million. The Arizona Public Safety Personnel Retirement System is investing $20 million.

TCDRS has planned to increase its private equity holdings. Its current allocation is 8 percent, but its target is 12 percent.

In fiscal year 2013-14, TCDRS’ private equity portfolio returned 22 percent.

Pennsylvania Public Schools Fund Commits $200 Million To Real Estate

The Pennsylvania Public School Employees’ Retirement System (PSERS) has announced its decision to allocate an additional $200 million to its real estate portfolio; $100 million will go to the AG Core Plus Realty Fund IV, which targets a return of 14-15 percent before fees.

From IP Real Estate:

The plan made two new $100m commitments to the AG Core Plus Realty Fund IV and the pension fund’s in-house co-investment and secondary real estate programme.

Pennsylvania is the second US public pension fund to approve a new commitment to Realty Fund IV, following the Illinois State Board of Investment, which made a $30m allocation.

Courtland Partners, the real estate consultant for Pennsylvania, said Angelo Gordon & Co would continue its core-plus strategy of acquiring equity interests in high-quality assets likely to appreciate over time.

The fund will target underperforming office, retail, apartment and industrial assets, with an emphasis on the Top 15 US markets, shunning development projects.

Most assets will be in the US, although the fund can invest as much as 25% outside North America.

[…]

Targeted gross returns for the fund are 14-15%, with the current income component of the return projected to be 7-8%.

The fund will have a leverage component of 55-65%.

Pennsylvania has now committed a total of $200m to in-house co-investments and its secondary investment strategy.

The capital can be invested via co-investments on specific transactions with other funds, as well as by buying out other limited partners from existing positions in funds.

PSERS is also exiting the Prologis North American Industrial Fund, a fund of logistics and distribution facilities in the U.S.

PSERS committed $200 million to that fund in 2006, but the investment is now thought to be worth $167 million.

Pennsylvania PSERS Director Announces Retirement

Jeffrey Clay, the executive director of the Pennsylvania Public School Employees’ Retirement System (PSERS) yesterday announced his plans to retire. PSERS is the state’s largest public pension fund.

He’ll officially leave his position in March.

Patriot News: Are Hedge Funds Right For Pennsylvania?

Last week Pennsylvania’s auditor general publicly wondered whether hedge funds were a sound investment for the state’s “already stressed” pension systems.

The crux of the auditor’s concern was the millions in fees paid by the system. In an editorial Monday, the Patriot News also questioned the fees incurred by hedge fund investments – including the fees that the public doesn’t know about. From the Patriot News:

The Pennsylvania State Employees’ Retirement System (PSERS) paid about $149 million in fees to hedge funds in fiscal year 2013, according to WITF, the public broadcasting station.

The Philadelphia Inquirer has noted that “It’s hard to know how much Pennsylvania SERS paid, since some SERS hedge fund fees aren’t included in the agency’s annual report.”

WITF also noted that it’s not clear what the pension fund got after paying all that money, which is the point raised by Auditor General DePasquale.

[…]

Pennsylvania has been one of the most aggressive states investing in “alternative” vehicles like hedge funds. In 2012, The New York Times reported that Pennsylvania’s state employees pension fund had “more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.”

Those investments cost Pennsylvania $1.35 billion in management fees in the previous five years, according to the Times report.

The editorial wondered whether the state was really getting what it paid for performance-wise. From the Patriot News:

During that time, it appears Pennsylvania paid more and got less than other states did.

Over the five-year period, Pennsylvania’s annual returns were 3.6 percent. During that time, the New York Times report said the typical public pension fund earned 4.9 percent a year. And Georgia, which was barred by law from investing in high-fee alternative funds, earned 5.3 percent a year.

Georgia’s fees were a lot lower, too. For a pension fund about half the size of Pennsylvania’s, it paid just $54 million in fees over the five years. Pennsylvania paid 25 times as much for results that were significantly worse.

Pennsylvania’s two big pension funds are tens of billions of dollars short of being able to pay all the money they’ll owe to retirees.

One has to wonder whether one reason is that the funds are spending too much money on supposedly sophisticated investments that aren’t worth the cost.

It’s a question the Legislature needs to answer.

SERS allocates 7 percent of its assets, or $1.9 billion, towards hedge funds. PSERS, meanwhile, allocates 12.5 percent of its assets, or $5.7 billion, towards hedge funds.

Pennsylvania Not Cutting Hedge Funds Despite State Auditor’s Skepticism

CalPERS’ decision to pull out of hedge funds is having a ripple effect across the country.

On Wednesday, Pennsylvania Auditor General Eugene DePasquale released this skeptical statement on the state pension system’s hedge fund investments:

“Hedge fund investments may be an appropriate strategy for certain investors and I trust that SERS and PSERS weigh investment options carefully,” DePasquale said in a statement. “But, SERS and PSERS are dealing with public pension funds that are already stressed and high fees cost state taxpayers more each year. I support full disclosure of hedge fund fees paid by our public pension funds and we owe it to taxpayers to ensure that those fees do not outweigh the returns.”

Spokespeople for both the State Employees Retirement System (SERS) and the Public School Employee Retirement System (PSERS) have now responded. The consensus: the pension funds will not be cutting their hedge fund allocations.

From Philly.com:

SERS has no plans to cut hedge funds further. “Hedge funds play a role in our current board-approved strategic investment plan, which was designed to structure a well-diversified portfolio,” SERS spokeswoman Pamela Hile told me. With many more workers set to retire, hedge funds (or “diversifying assets,” as SERS prefers to call them) combine relatively steady returns with low volatility “over varying capital market environments.” By SERS’s count “difersifying assets” are now down to $1.7 billion, or 6% of the $28 billion fund and returning 10.7% after fees for the year ending June 30, up from a 10-year average of 7.4%.

Says PSERS spokeswoman Evelyn Williams: “We agree with the Auditor General that hedge funds are appropriate for certain investors. Not all investors can or should invest in hedge funds. Clearly CALPERS reviewed their hedge fund allocation and acted in their own fund’s best interests.

“PSERS also sets our asset allocation based on our own unique goals and issues. We do not have any immediate plans to change our hedge fund asset allocation at this time… PSERS’ hedge fund allocation provides diversification for our asset allocation and is specifically structured so it does not correlate with traditional equity markets…PSERS hedge fund allocation has performed as expected and provided positive investment returns over the past fiscal year, one, three, and five years.”

SERS allocates 7 percent of its assets, or $1.9 billion, towards hedge funds. PSERS, meanwhile, allocates 12.5 percent of its assets, or $5.7 billion, towards hedge funds.

Photo by TaxRebate.org.uk

Ex-Pension CIO Partially Cleared of Allegations of Hiding Poor Investment Performance, But Suspicions Remain

A months-long probe into the ex-CIO of the Pennsylvania State Employees Retirement System (PSERS) has wrapped up this week, and the results are in: the investigation found no evidence that the former CIO, Anthony Clark, lied to the pension board about the poor performance of an investment.

But, investigators say, the lack of evidence wasn’t so overwhelming as to dispel suspicion entirely. One investigator said that whether Clark lied to the pension board is still “open to question”.

Other allegations against Clark included not consistently working a full workweek and conducting personal investment business on the job. An anonymous employee at the fund had originally tipped off investigators, but the subsequent investigation uncovered no wrongdoing by Clark in those areas.
Reported by the Pittsburgh Post-Gazette:

A law firm hired by the Pennsylvania State Employees’ Retirement System to investigate allegations against a former chief investment officer has found no evidence of broken laws or state rules.

But after an eight-month probe into an investment decision and the personal trading and work hours of Anthony Clark, attorneys with the firm Obermayer Rebmann Maxwell & Hippel refrained from concluding whether the investment chief had deceived the SERS board over an investment with hedge fund Tiger Asset Management. The agency announced the conclusion in a letter released Wednesday.

“Obermayer found no evidence of illegality in what turned into an under-performing investment mainly due to its gold component,” wrote Walter Cohen, a past acting attorney general of Pennsylvania.

“Whether Clark intentionally misled the Board by seeking to conceal Tiger’s poor performance is open to question but the Board remained vigilant in monitoring the Tiger investment until its dissolution.”

[…]

Mr. Clark also had been accused of conducting personal investment activities at work and failing to spend a full work week on his SERS responsibilities. In his letter summarizing the firm’s findings, Mr. Cohen wrote none of his associates interviewed could substantiate the allegation of “day trading.“

Clark resigned from his position with PSERS in 2013, soon after the allegations surfaced. He hasn’t worked since.

Photo by www.SeniorLiving.Org

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