By David G.
Barry
The
Pennsylvania Public School Employees’ Retirement System (PSERS) has begun a
search for chief investment officer – a move that comes eight months after its
prior CIO stepped down and just days after the U.S. Department of Justice
closed its investigation of the $75 billion pension fund.
No timeline was given for the search, which is being overseen by Hudepohl
& Associates. The 15-person PSERS board will make the final selection. The
CIO oversees a team of 70.
PSERS’ search comes at a time when five other state public pension systems are
seeking CIOs: the Employees’ Retirement System of the State of Hawaii (ERS),
the Idaho Public Employee Retirement System, the Minnesota State Board of Investment,
the New Hampshire Retirement System, and the Kansas Public Employees
Retirement System.
Robert J. Devine, the system’s fixed income managing director, has
served as PSERS’ acting CIO since December, when James H. Grossman Jr.
transitioned to a senior advisor role prior to retiring in May. Devine has been
with PSERS since 1998.
Grossman and then-Executive Director Glen R. Grell moved to retire in
November after an investment calculation error led to the federal
investigation.
In the posting for the CIO position, PSERS said the Justice Department closed
the probe and would not be bringing criminal or civil charges against the
system. A PSERS spokesman, Steve Esack, said there was no correlation between
the probe closing and the CIO announcement. Rather, Esack said the board had
sought to first fill the system’s executive director and chief counsel roles.
In June, Terrill J. Sanchez was named executive director. She had served
as interim director since Grell’s retirement. Previously, she had retired as
executive director of the $39 billion Pennsylvania State Employees’ Retirement
System on Dec. 31.
And more
recently, the board named Joseph J. Indelicato Jr. as a special advisor
and said he would assume the role of chief counsel once Pennsylvania licensing
requirements are complete. PSERS has been without a permanent chief counsel
since October 2021 due to what the system said was a “staff requirement.” Two
interim attorneys have led the agency’s internal legal department since then.
Indelicato most recently served as general counsel of the New York State Teachers’
Retirement System (NYSTRS). He was with NYSTRS for 21 years, the last eight as
general counsel.
The largest public employee pension system in Pennsylvania, PSERS has a
membership of more than 515,000.
Due to underfunding for the 15 years prior to fiscal year 2017, PSERS as of
June 30, 2021, had an unfunded liability of $44 billion and a funded ratio of
59.6%. PSERS has put in place a plan aimed at bringing it to full funding. It
is projected to reach 76% by 2029.
The plan has not yet released its results or funded ratio for fiscal year
2021-2022.
In fiscal year 2021, PSERS generated investment returns of 24.5%, net of fees,
compared with the policy benchmark of 20.58%.
The PSERS board approved a new asset allocation in October 2021 but has not set
a date for the full transition. Under that plan, equities increased to 48% from
39%. It is now at 38.2%. Fixed income was reduced from 35% to 34%. It is
currently at 31.2%. Real assets also were reduced. Now at 28%, it is set to
decline to 26%. The current allocation to the asset class is 28.4%. Absolute
return, or hedge funds, are being taken from 8% to zero. It is currently at
7.4%.
PSERS earlier this month also approved $350 million in a new investment to
Caspian Keystone Focused Fund Ltd., a public fixed income commitment. It also
will transfer two other existing Caspian accounts – totaling up to $275 million
– to the new fund. Additionally, PSERS approved $97 million to a private equity
fund, TDR Capital V L.P., and $100 million to a private real estate fund, EQT
Exeter Industrial Value Fund VI, L.P.