Penn SERS Loses More Than 12% in 2022 | Chief Investment Officer

Despite a strong performance in the fourth quarter of 2022, the Pennsylvania State Employees’ Retirement System reported a 12% investment loss for 2022, ending a three-year streak of double-digit gains, including a 17.2% return the previous year. The loss lowered the pension fund’s asset value to $33.7 billion from $40.2 billion at the end of 2021.

Equities were the biggest drag on the pension fund’s portfolio, especially emerging market equities, which lost 22.84% during the year, followed by U.S. equities and international developed markets equities, which were down 19.06% and 15.17%, respectively.

Penn SERS’ Treasury inflation-protected securities and fixed-income investments also weighed down the portfolio, losing 12.99% and 12.34% for the year, respectively, while its private equity holdings lost 5.06% in 2022.

The only asset classes within the portfolio that produced positive gains for the year, aside from cash, were legacy private credit and real estate, which returned 8% and 6.02%, respectively, for the year.

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Down more than 16% after the first three quarters of the year, Penn SERS ended the year on a high note with a 4.75% return in the final quarter. Several of the asset classes that lagged for the year overall led the gainers in the final stretch. For example, the top-performing asset class in Q4 was international developed markets equity with a 15.86% return, followed by emerging markets equity and U.S. equity, which returned 9.83% and 7.2%, respectively.

All of the portfolio’s asset classes produced positive returns for the quarter, except for private equity, which lost 0.33%. TIPS and fixed-income investments returned 2.17% and 1.46%, respectively, while real estate, legacy private credit and cash returned 1.4%, 1.34% and 0.94%, respectively.

In addition to announcing the annual returns, the Penn SERS board also approved the extension of its current general investment consultant contracts and approved a $75 million investment within its private equity asset class to PSG VI L.P. as a follow-on investment.

The pension fund extended by a year its contract with Callan for general investment consulting services for its defined benefit, defined contribution, and deferred compensation plans. The current contracts are set to expire Feb. 25, 2024. Penn SERS said the extension will allow Callan to help it search for a third-party administrator for its defined contribution and deferred compensation plans.

The board also approved annual salary adjustments for 25 investment staffers, including CIO Jim Nolan.

Additionally, Penn SERS’ actuary, Korn Ferry, told the board that, based on its shared-risk/shared-gain calculations, there will be no increase in member contribution rates for the fiscal year that begins July 1.

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Penn SERS Returns 17.2% in 2021, Led by Private Equity Investments

Tags: annual return, Benjamin Cotton, Callan, Fourth Quarter, Korn Ferry, Pennsylvania State Employees Retirement System (SERS), Private Equity, Q4

In its first legal action against alleged greenwashing, the Australian Securities and Investments Commission accused Mercer Superannuation Limited of misleading its participants about the sustainability of some of its investment options.

The ASIC launched civil penalty proceedings in Australia’s Federal Court and says statements the pension fund made about the sustainable nature and characteristics regarding some of its superannuation investment options were misleading.

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In particular, the regulator alleges Mercer made misleading statements on its website about seven “Sustainable Plus” investment options offered by the Mercer Super Trust. The regulator said Mercer’s statements marketed the options as excluding investments in companies involved in carbon-intensive fossil fuels like thermal coal, and therefore suitable for members who “are deeply committed to sustainability.” Mercer also allegedly said on its website that the exclusions also applied to companies involved in alcohol production and gambling.

However, the ASIC alleges that the Sustainable Plus investments include investments in companies involved in the fossil-fuel, alcohol-production and gambling industries.

The regulator said 15 companies were involved in the extraction or sale of carbon-intensive fossil fuels, including AGL Energy, BHP Group, Glencore and Whitehaven Coal. Another 15 companies were involved in alcohol production, including Budweiser Brewing Company, Carlsberg, Heineken and Treasury Wine Estates. A further 19 companies were involved in gambling, including Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings.

‘There is increased demand for sustainability-related financial products, and with that comes the growing risk of misleading marketing and greenwashing,” ASIC Deputy Chair Sarah Court said in a release. “If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position. If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld.”

The ASIC said it is seeking declarations and pecuniary penalties, as well as injunctions preventing Mercer from continuing to make any of the allegedly misleading statements on its website. IT also seeks orders requiring Mercer to publicize any contraventions found by the court.

‘This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct,” Court said in the release. “It reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate.’

A spokesperson for Mercer, the trustee of the Mercer Super Trust, said in an emailed statement that the company has cooperated with ASIC in its investigation and that it “will continue to carefully consider ASIC’s concerns with respect to this matter,” adding that “it would be inappropriate to comment further as the matter is now before the courts.”