Penn SERS Redefines Fixed-Income Allocations in Liability-Driven Push

The Pennsylvania State Employees’ Retirement System (SERS)’s board has adopted new fixed-income allocations for its $32 billion defined benefit (DB) plan fund in a move toward a liability-driven benchmark.

“The SERS board showed leadership and foresight by adopting a fixed-income portfolio that is intended to hedge the liability, thereby strengthening the benefit for the members,” Pennsylvania SERS CIO Seth Kelly said in a statement. “This liability-driven or cash flow-driven investing makes SERS a leader in the public fund industry.”

Kelly said the board spent “many hours” learning about the portfolio strategy and decided it was in the best interests of the retirement system’s members.

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The board also instructed its staff to produce an annual report of public market investment manager contract amendments for review by the board each April, which was the last outstanding recommendation from the 2018 Public Pension Management and Asset Investment Review Commission.

“I’m very proud of our staff and the work they have done considering each recommendation, researching related industry standards, and thinking strategically about new approaches to address many of the recommendations,” said Pennsylvania SERS Executive Director Terri Sanchez.

The commission conducted an in-depth review of the state’s two retirement systems, which ended up in a report of more than 100 recommendations issued in late 2018. The recommendations related to a range of topics, such as full funding, stress testing, transparency, portfolio implementation, and performance and asset allocation, among other recommendations.

The board also reported that the fund returned 5.78% for the third quarter that ended Sept. 30 and 0.93% for the year to date to that point. The top performing asset classes during the quarter were emerging markets equity and private equity, which returned 11.38% and 10.5%, respectively. They were followed by US equity, international developed markets equity, and private credit, which earned 8.77%, 6.11%, and 5.82%, respectively, during the quarter.

The top performing asset classes for the year to date to Sept. 30 was Treasury inflation-protected securities (TIPS), which returned 9.12%, followed by private equity and emerging markets equity, which earned 4.33% and 3.54%, respectively.

The retirement system’s board also approved more than $125 million in new investments, more than $75 million of which will be invested in private equity, with the remaining $50 being allocated to real estate investments. This included the approval of up to €64 million ($77.8 million) to PSG Europe L.P., which focuses on growth equity investments in European software and tech-enabled service companies. The commitment is a continuation of the fund’s relationship with the manager.

The board also approved two commitments to a new minority-owned manager for the fund that will focus on office opportunities in the Pacific Northwest. One commitment is for up to $30 million to Rubicon First Ascent LP, and the other is for up to $20 million to Rubicon First Ascent Sidecar LP. The fund said the commitments will help bring the real estate allocation closer to its long-term target allocation, while concentrating exposure to top-performing strategic partners.

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Tags: Defined benefit (db) pension plans, Fixed-Income, liability-driven, Pennsylvania State Employees Retirement System (SERS), PPMAIRC, Public Pension Management and Asset Investment Review Commission, Seth Kelly, Terri Sanchez

Art by Iris Lei

Mercy Health’s deputy investment chief, Elizabeth Jourdan, will take over as deputy chief investment officer (DCIO) at Granger Management Holdings, according to a Thursday LinkedIn post.

Jourdan will head to the New York-based family office after spending more than five years managing portfolios at Mercy Health’s $2.9 billion fund. During her tenure, she also led the socially responsible investing initiative at the Catholic nonprofit health organization, which is headquartered in St. Louis, Missouri.

She will answer to Chief Investment Officer Seb Calabro, who started at Granger Management in October after a decade at a New Jersey-based risk advisory firm, according to LinkedIn. The leadership team also includes Andy Walter, a founder and managing member, and Geraldine McManus, managing member.

At Granger, Jourdan would presumably manage a much smaller fund. As of September, the family office managed nearly $760 million assets for 21 clients, according to a public disclosure.

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The bulk of Mercy’s assets are now being managed by an outside firm—namely, Granger. Granger, according to Institutional Investor, reportedly is now managing $2 billion in assets for Mercy Health.

In November 2019, Mercy Health CIO Tony Waskiewicz left the fund after sources said the health organization conducted a review of its balance sheet. Mercy said the parting was amicable.

Neither Jourdan nor Granger responded to requests for additional comment. Mercy also did not respond to request for comment.

Jourdan previously was an investment strategist at Prime Advisors, a core fixed income asset manager. She is also a member of the Archdiocese of St. Louis’s investment committee.

In 2020, she was named NextGen of the Year by this publication as the allocator most likely to soon be named CIO at a fund. She won the title after answering a series of rapid-fire questions along with other candidates.