PA SERS loses 26% on private equity in 2008

The $22bn state workers' pension fund lost 16.5% on its private equity portfolio in the fourth quarter of 2008, along with fourth quarter drops of 13.1% in venture capital and 14.8% in real estate.

Pennsylvania State Employees' Retirement System reported losses a decline of 26 percent in its private equity investments in 2008, driven by a 16.5 percent drop in the fourth quarter alone.

Reporting first quarter results, the $22 billion pension (SERS) said it lost 7.5 percent for its entire portfolio during the first three months of 2009.

However, owing to the lag in reporting real estate and private equity returns, the pension said it was only able to report full-year and final quarter results for the two asset classes. SERS’ venture capital investments lost 16.4 percent during 2008, including 13.1 percent in the last three months of the year. The pension's real estate portfolio dropped 22.2 percent for the full year, with a 14.8 percent decline in the fourth quarter.

Private equity and venture capital account for 23 percent of the pension fund’s portfolio, while real estate makes up 11 percent.

As a result, Pennsylvania has lowered its assumed rate of return on investments to 8 percent from 8.5 percent, and expects to significantly increase its employer contribution rate to as much as 31 percent by 2013/14.

SERS board chairman Nicholas Maiale said in a statement it was “no longer realistic” to assume the pension could earn an average, long-term, return of 8.5 percent.

The pension has invested in a raft of private equity managers including The Blackstone Group, Apollo, Bain Capital, The Blackstone Group, Clayton Dubilier & Rice, First Reserve, Madison Dearborn, Permira and Oaktree.

Christopher Witkowsky contributed to this report.