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PSERS struggles to hire amid consolidation uncertainty

Staff may bring a proposal to the board to restart an incentive programme to make compensation more attractive, according to chief investment officer James Grossman.

Pennsylvania Public School Employees’ Retirement System received 300 resumes for an investment professional position it advertised for this year. None were hired.

Lack of an incentive programme and uncertainty around  a proposed central investment office for PSERS and Pennsylvania State Employees’ Retirement System are making it harder for the pension system to hire talent, chief investment officer James Grossman, told Private Equity International.

The state set up the Public Pension Management and Asset Investment Review Commission (PPMAIRC) in 2017 to conduct a comprehensive review of investment management at PSERS and SERS. The Commission recommended exploring consolidating the investment offices of PSERS and SERS into a central investment office.

The whole conversation around a central investment office is creating uncertainty in recruiting, according to Grossman. “Even our private equity managers come in here and say, ‘What’s going on?’” he said.

The pension system has three open positions for investment professionals in its non-traditional investments arm, which includes private equity, real assets, private credit and absolute returns.

The search for the investment professional that attracted 300 resumes was done in-house, Grossman said. The staff reviewed the resumes and made one offer, but the candidate expressed that the compensation was 35 percent less than he was seeking. The base salary is “fairly competitive” but a lack of incentives was a problem, Grossman said.

PSERS’ incentive programme was eliminated in December 2008 after staff received bonuses for 2007-2008, despite the fund losing $1.8 billion in the aftermath of the global financial crisis, according to Grossman.

“There was a lot of blowback that people were getting incentives when the pension system was losing money,” Grossman said.

The final payout was for six months in the 2007-2008 period and amounted to $416,000. Back then, incentives were generally paid based on relative returns, not absolute returns. “So, you could have negative absolute returns, but relative to the appropriate benchmark, could still earn an incentive,” Grossman said.

The staff would look to bring back a proposal to the board for re-introducing incentives through the personnel committee. “Timing’s everything and I am not sure when that’s going to be,” Grossman said.

PSERS may also explore engaging an external search agency for the investment positions to allow staff to focus on investments. Executive search firms have a “rolodex of people they can approach” and will be able to cast a wider net, Grossman said. Besides, they can search longer for a position because PSERS can advertise a position for only 30 days.

PSERS was not looking for specific skill sets for the new hires because staff “had been training itself and learning about private equity and its processes”, Grossman said.

Grossman said the pension system prides itself on stability, and most investment staff has been with it for many years. For instance, deputy chief investment officer Charles Spiller, who leads non-traditional investments, has been at PSERS for 25 years and director for private equity Darren Foreman has been at the pension system for 23 years.

Staff stability helped PSERS build good relationships with its GPs and gave it “street credibility”.

“We’re going to be there for a long time, versus this year Joe’s there, next year Carolyn’s there and Dave’s there the next day,” Grossman said.