By Lauren Bailey
The Pennsylvania State Employees’ Retirement Board reported a 9.82% return in 2024, just shy of its total fund benchmark of 9.88%.
According to its latest annual report, the plan added roughly $3.5 billion to its assets under management as of Dec. 31. Notably, U.S. equities generated the highest return, increasing 2.80% in the fourth quarter and 23.38% for the full calendar year. Private credit funds followed close behind, returning 2.44% for the quarter and 10.50% for full-year 2024, while private equity returned 1.34% in Q4 and 6.28% by year’s end.
PennSERS’ international developed (4.97%) and emerging markets (8.64%) equities both saw marked increases by Dec. 31, 2024, relative to their current benchmarks (4.15% MSCI World ex U.S. and 7.43% MSCI EM, respectively). Both also registered declines (-6.81% and -7.76%, respectively) for the quarter. It noted global equity markets saw proposed Trump tariffs weigh on Europe and China, with Europe one of the worst-performing regions. Japan’s new economic stimulus plan helped stem its decline over the quarter. By contrast, emerging markets declined due to poor results coming out of China and India, with the latter falling short of expectations.
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Fixed Income (-2.34), inflation-protection (-2.88) and real estate (-3.53) all registered declines in Q4, though real estate (-12.25) was the only segment that saw a decline in the full year (-12.25 compared to 2.48% and 1.81%, respectively). The plan attributed fixed income declines to inflation concerns and a steepening of the yield curve. It noted leveraged finance sectors were the only positive fixed income sectors as spreads tightened. It also found corporate credit spreads across both investment grade and leveraged finance tightened, with both being “priced to perfection.”
That said, GDP growth in the euro zone rose modestly (+0.4%), while the ECB cut rates in December, and Japan’s grew 1.2% on the back of strong exports and a weaker yen. The U.S. dollar rose 8% versus a basket of six developed market currencies.
Declines in real estate were attributed to valuations bottoming out, reflecting higher interest rates. While Income returns were positive across sectors and regions, there were some mixed results, particularly with office and hotel having experienced negative appreciation, and remaining sectors having flat or positive appreciation. As well, global real estate investment trusts underperformed in Q4 2024, down 9.7% compared to a 0.2% decline for global equities. In particular, U.S. REITs fell 6.2% that quarter, compared to the S&P 500 Index, which rose 2.4%.
