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.