Pennsylvania SERS Loses 4.6% in 2018 | Chief Investment Officer

A volatile fourth quarter of 2018 erased the year’s gains for the Pennsylvania State Employees’ Retirement System (Penn SERS) as its portfolio ended the calendar year down 4.6%, compared with a 2017 calendar year return of 15.1%.

It was the fund’s worst calendar year investment performance, and the system’s first annual loss, since 2008, when the financial crisis sent the portfolio tumbling 28.7%. The retirement system ended 2018 with 20-, 25-, and 30-year returns of 6.0%, 7.7%, and 8.4% net of fees, respectively. The retirement system’s unfunded actuarial liability was $22.8 billion, giving it a funded ratio of only 56%.

The 56% funded level means the system is considered to be in “critical status” as defined under the Pension Protection Act of 2006. However, Penn SERS said that its current projections indicate that in a little over a decade, the funded ratio will reach 80%, which is generally accepted by pension experts as healthy.

Private equity was the top-performing asset class in the portfolio during the year returning 11.4%. However, it was the only asset class to earn positive gains except for cash, which earned 2.1% for the year. Legacy hedge funds were the worst-performing asset class, losing 13.7%, followed by global public equity, which lost 10.4%, and real estate, which was down 2.3%.

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The 4.6% loss for the calendar year is indicative of the rough second half of 2018 for investments, as Penn SERS’ portfolio had earned an 8.6% return for fiscal year 2018, which ended June 30.

The fund said that last year’s volatility led to an unanticipated delay in the pace of employer contribution reductions. It said that employers will contribute 33.5% of payroll in fiscal year 2019-20, which is estimated to generate $2.1 billion. SERS employer contribution rate is now expected to peak at about 34.9% in fiscal year 2022-2023, but remain above 20% until fiscal year 2040-2041.

A state pension reform law that was enacted in 2017 includes a “savings plow-back” provision that requires any annual savings achieved through SERS’ benefit changes to flow back into the system rather than to the state’s non-pension budget obligations. SERS said it expects plow-back contributions in 13 of the next 23 fiscal years, which it said should accelerate the system’s return to fully funded status.

Plow Back Provision Helps Pennsylvania SERS Boost Its Employer Contributions

Tags: Pennsylvania State Employees Retirement System (SERS), Pension, Returns

Financial services firm Sun Life Financial Inc. has launched an autonomous asset management business with C$212 billion ($160.7 billion) in combined assets under management.

The new asset manager, called SLC Management, combines Prime Advisors, Ryan Labs Asset Management, and Sun Life Institutional Investments, which are the company’s affiliated fixed income institutional asset management businesses. SLC Management also replaces the Sun Life Investment Management brand globally.

“The launch of SLC Management builds on the organic growth that we’ve achieved since the establishment of our business and on the acquisitions of Ryan Labs, Prime Advisors and Bentall Kennedy,” said Steve Peacher, president of SLC Management, in a statement.

The seeds for SLC Management were planted in 2014, when parent Sun Life created Sun Life Institutional Investments to offer institutional alternative asset class funds and liability-driven investing strategies to Canadian institutional investors. The following year, the firm acquired Toronto-based Bentall Kennedy Group, and New York-based Prime Advisors, Inc. and Ryan Labs Asset Management Inc. In 2018, it added a leveraged finance group to the firm, and agreed to acquire a majority interest in global real estate investment firm GreenOak Real Estate.

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Sun Life said it intends to merge Ryan Labs and Prime with Sun Life Capital Management at the end of the year. It also said it will transition the investment division managing its general account into the SLC Management business at about the same time.

Of the $160.7 billion in assets under management, approximately $83 billion are in public fixed income, $44 billion are in real estate equity and debt, and $28 billion in private fixed income.

SLC Management will be comprised of two main pillars: a fixed-income pillar and a real estate pillar. The fixed income pillar will operate under the SLC Management brand name, and will include Prime Advisors, Ryan Labs Asset Management, and Sun Life Institutional Investments in the US and Canada. The real estate pillar will be comprised of the merged operations of SLC Management’s Bentall Kennedy business with GreenOak Real Estate, and will be named BentallGreenOak.

The firm said each of the portfolio management teams within SLC Management will retain investment autonomy while having access to a global credit analyst team of 40. The structure is intended to allow the teams to focus on investment performance for SLC Management’s clients.

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Tags: Asset Management, SLC Management, Sun Life Financial