PSERS hikes PE to meet unfunded exposure

The $47bn pension has $6bn of unfunded commitments to private equity, and has increased its allocation to 21% from 18%.

The $47 billion Pennsylvania School Employees' Retirement System has hiked its allocation to private equity to 21 percent from 18 percent to make room for $6 billion of unfunded commitments in the portfolio.

“The [private equity] allocation will increase as the capital is put to work through the next year,” the pension said in a memo. The increase will come from a reduction in the pension's public equities portfolio.

The pension also eliminated its public real estate securities portfolio, which had a 1.5 percent allocation. That percentage is being transferred to the private real estate portfolio, and combined with a general 1 percent increase, the allocation will grow to 10.5 percent from 8 percent. PSERS has about $3.4 billion of unfunded commitments to real estate funds.

PSERS is not terminating its contracts with public real estate managers. “Staff's intention is to retain the contracts of the terminated managers and to re-establish a public real estate allocation in the future once the fund starts receiving net distributions from private real estate,” the pension said in a memo.

PSERS will not be making new private equity commitments any time soon. The pension, which was once one of the most active private equity investors, made only one private equity-related commitment last year, to the Sankaty Middle Market Opportunities Fund, a Bain Capital-affiliated credit fund.

“We have no plans for new commitments at this time, we have sufficient unfunded commitments,” a pension spokesperson told PEO.

Last year, PSERS backed out of millions of dollars of recommended commitments as it battled with a heavily overweighted exposure to private equity. At the time, the pension had an actual allocation of 24 percent, and a target of 14 percent.