PA SERS shifts strategy to real assets

The $24 billion pension plan will allot 12% to real assets and reduce its overall investment in real estate, which now will be a sub-asset class.

The Pennsylvania State Employees’ Retirement System (PA SERS) has adopted a new strategic investment plan that includes a reclassification of its investments. 

As part of its 2012-2013 strategic investment plan, PA SERS has consolidated separately investments in real estate, commodities, timberland, energy and natural resource equities into one allocation called ‘real assets.’ Moving forward, the $24 billion pension plan will allot 12 percent to this new allocation, compared to a total of roughly 15 percent to the various subcategories prior to this strategic shift.

Under the new investment plan, which the state pension system adopted earlier this month, the new asset class structure recognises real estate as a sub-asset class within the real assets allocation, rather than as its own primary asset class. As a result, PA SERS will be reducing its investment in real estate from roughly 10 percent during its last fiscal year to six percent, or around $900 million. 

Documents from the pension plan reveal that this move has been made to increase liquidity options, increase returns and reduce fees. “PA SERS will reduce the pace of new real estate opportunity fund investments, which have high fees, lock-up capital for extended periods and duplicate strategies in other direct separate accounts,” the documents stated.

The strategic investment plan focuses on reducing the number of asset classes and reorganising assets based on their overall roles in the fund, rebalancing the fund to manage risk with an emphasis on mitigating capital impairment risk and establishing a liquidity reserve. 

“We will implement the new allocation in a deliberate, systematic way over time by redirecting redemptions and other activities,” said PA SERS chief investment officer Anthony Clark in a statement. “This work continues the fund’s on-going shift from a legacy, endowment-like model toward a more liquid, total return strategy.”  

Clark added that “organising assets in this way provides greater transparency into the total fund portfolio and affords greater opportunity to manage market risk by adjusting allocations within pre-determined and appropriate ranges.”