The State Employees’ Retirement System of Pennsylvania today reported earning 7.1%, or $1.6 billion in the third quarter of 2009. It also reported private equity returns of 7.2% and venture capital returns of 0.1% (both PE and VC returns lag one quarter, so are through June 30).
The State Employees’ Retirement System today reported earning 7.1%, or $1.6 billion, in the quarter ended Sept. 30. The results mark a second consecutive quarter of gains and put the SERS Fund in positive territory for the year, officials said.
“Our year-to-date performance continues to be impaired by the first quarter, when investment markets were still falling sharply,” Chief Investment Officer John Winchester reported at a SERS Board meeting here today. “But thanks to the positive performance in the second and third quarters, the Fund’s cumulative performance through the first three quarters of the year stood at 4.5% as of Sept. 30.” SERS operates on a January-to-December fiscal year.
International stocks provided the strongest performance in the third quarter, returning 19.9%, followed by global stocks at 18% and domestic stocks at 15.4%. The Fund also recorded a double-digit quarterly return on its fixed income investments, at 10.8%.
Other asset classes producing positive quarterly returns were private equity, 7.2%; absolute return (funds of hedge funds), 5.3%; inflation protection (including commodities), 5.1%; and venture capital, 0.1%. The only asset class producing a negative return for the quarter was real estate, at -8.9%. Officials said that reflected the ongoing weakness in the commercial real estate market.
The private equity, venture capital and real estate returns are lagged one quarter, meaning the numbers listed above for those asset classes are actually for the quarter ended June 30.
“We were particularly pleased to see private equity performance begin to recover as quickly as it did,” Winchester said. “Every indication is that the private equity portfolio has continued to gain value since June 30. If that trend holds, it should aid the Fund’s full-year performance.”
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The fund ended the quarter with $23.7 billion in assets, up from $22.6 billion at June 30. The $1.6 billion in investment earnings was supplemented by $145 million in employer and employee contributions, but offset by payouts of $591 million for annuitant benefits and expenses.
In other business, the Board adopted an updated strategic investment plan that anticipates a gradual shift over a multi-year period (and subject to annual review) toward a greater allocation to fixed-income investments in order to meet the liquidity needs arising from a projected increase in benefit payouts as the fund matures. SERS expects to pay out about $2.4 billion in benefits and expenses this year but that is expected to jump to $3.9 billion by 2019.
By major asset class, the current actual allocations, current targets and the newly adopted long term targets are: Stocks, 25%, 47%, 35.5%; alternative investments (private equity and venture capital), 22.1%, 14%, 12%; real estate, 8.7%, 8%, 7%; fixed income, 11.8%, 15%, 32.5%; inflation protection (including commodities) 6.3%, 7%, 4%; absolute return (funds of hedge funds)23.9%, 9%, 9%.
The divergence between current actual and current target allocations in several asset classes reflect the impact of the market turmoil in 2008 and the first quarter of this year, when some asset classes fell faster than others and when SERS elected to sell some more-liquid assets, both in order to ensure sufficient cash on hand to meet liquidity needs and as a safeguard against potential further market declines, Winchester noted.
About the Pennsylvania State Employees’ Retirement System
Established in 1923, SERS is one of the nation’s oldest and largest statewide retirement plans for public employees, with assets of more than $23 billion and more than 219,000 members.