Pennsylvania State Employees' Retirement System, once an active private equity investor, has dramatically slashed its target allocation to the asset class as it works to boost its exposure to fixed income investments.
PA SERS, a $24.4 billion system, is cutting its target allocation to alternatives, which includes private equity and venture capital, from its target of 24.5 percent to a long-term target of 15 percent. The pension system's actual allocation stands at roughly 25 percent.
The pension is “gradually” increasing its exposure to fixed income “to meet the liquidity needs arising from a projected increase in benefit payouts as the system matures”, a spokesperson told PEO. “This is a measured process that will be done through cash flows and distributions. Because we are not making new commitments to private equity and venture capital at the same levels as in the past, as we receive distributions from existing PE/VC funds, much of that money will be available to be reallocated elsewhere over the next five years.”
Meanwhile, through the second quarter, the system's private equity portfolio has produced a .5 percent return, the pension said in a statement.
PA SERS resolved to only commit capital to its existing private equity managers, and has followed that strategy this year, sticking to re-ups. Recently, the pension committed $75 million in re-ups to BC Partners, Meritech Capital Partners and SFC Energy Partners.
It's unclear if the pension is using the secondaries market to sell off some of its private equity holdings. The spokesperson didn't respond to questions about secondaries sales.