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

Pension fund reports third straight year of double-digit investment gains, but falls short of benchmark.



The investment portfolio of the Pennsylvania State Employees’ Retirement System returned approximately 17.2% in 2021 to raise its total asset value to $40.2 billion. The performance more than doubled the pension fund’s assumed rate of return, but fell just short of its benchmark’s return of 17.5%.

It was the third straight year—and fourth out of the last five—that Penn SERS’ investments earned double-digit returns. As of the end of 2021, the pension fund earned 10-, 15-, 20- and 25-year annualized returns of 9.4%, 6.5%, 7.7% and 8.0% net of fees, respectively. In 2021, the fund paid out approximately $3.7 billion in retirement benefits to more than 134,000 retirees.

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The top-performing asset class for calendar year 2021 was private equity, which returned 52.8%, and has returned 20.1% and 15% respectively over the past five and 10 years annualized. The fund recently approved $125 million in new investments within the private equity class with private equity firm Veritas Capital.

U.S. equity investments were a distant second, returning 24.6% for the year, and earning 17.1% and 15.6% respectively over the past five and 10 years annualized. Fixed income and emerging markets equity were the worst-performing asset classes for the fund, and the only ones to decline during the year, losing 0.8% and 0.5% respectively.  

Despite the robust returns, the pension fund isn’t expecting the streak of double-digit returns to last very long. Earlier this month, the Penn SERS board approved a reduction in the pension fund’s assumed rate of investment return to 6.875% from 7%. The new rate will take effect with the December 31 actuarial valuation of the retirement system.

“The board carefully considered a number of options, ultimately settling on an eighth of a percentage point reduction,” Penn SERS Executive Director Joe Torta said in a statement. “The incremental reduction reflects a reasonable long-term target to be achieved over the next 20 to 30 year period, given current market projections, and is right in line with our peer systems.”

The pension fund has gotten off to a slow start in 2022, as it recently reported a 3.24% loss for the first quarter of the year, weighed down by emerging markets equity, which lost 9.83%. International developed markets equity, U.S. equity, and fixed-income investments also burdened the fund during the first quarter, losing 5.75%, 5.46% and 5.12% respectively.  Meanwhile, real estate, private credit and private equity were the only asset classes to see gains during the quarter, rising 3.56%, 3.00% and 2.78% respectively.

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Australia’s Future Fund CIO Sue Brake Steps Down

CEO Raphael Arndt will take over as CIO for the sovereign wealth fund until a successor is hired.



Sue Brake, CIO of Australia’s sovereign wealth fund the Future Fund, is stepping down and leaving the organization for family reasons. She is departing after three years with the fund and less than two years as CIO.

“I am looking forward to this period where I can focus on my family, and grateful that I am able to leave the team and portfolio in very good hands to do that,” Brake said in a statement. “I am very proud of the investment team’s achievements over the past few years, which will enable the Future Fund to continue its critical mission of investing for the benefit of future generations of Australians.”

With Brake’s departure, the Future Fund has decided to restructure its investment team, which it said will focus on optimizing governance, people and technology with three deputy CIO roles reporting directly to the CIO.

Future Fund CEO Raphael Arndt, who was CIO of the fund from 2014 to 2020, will act as CIO while maintaining his current role until a successor to Brake can be found. Wendy Norris, deputy CIO of private markets, will become deputy CIO, change and innovation. Ben Samild, deputy CIO of portfolio strategy, has been named deputy CIO, portfolio construction. And Alicia Gregory, the fund’s head of private equity, will join the senior leadership team as deputy CIO, private markets.

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Brake, who joined the fund as deputy CIO, portfolio strategy in 2019, played an important role in the review of the fund’s investment strategy, according to a release.

“I want to thank Sue for her valuable contribution to the Future Fund during a time of unprecedented change in global markets and economies,” Arndt said in a statement. “Her leadership and work on the review of the investment strategy leave a significant and positive legacy at the Future Fund.”

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Future Fund Names New Private Equity Head

 

 

 

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