Pa. Teachers' pension fund: Rough year for energy, commodity bets

The $52 billion-asset Pennsylvania Public School Employees' Retirement System lost money last year, trailing the performance of the Pennsylvania and New Jersey state worker pension investment returns for 2015, the system just acknowledged in a Friday afternoon report.

PSERS reported negative returns of -1.8% for the 12 months ended Dec. 31.
SERS (the Pa. state workers' fund) last month reported a gain of +0.5% for 2015.
NJDI, the New Jersey Division of Investment, reported a gain of +0.6%,
All three trailed far behind the +7 to 8 percent annual fund targets, as stock and commodity values plunged.

PSERS's extra losses reflected its unusually large bets on commodity fund managers. The system posted 33% losses for funds invested in "Master Limited Partnerships" (typically oil and gas investments),  18% for commodities investments, and 8% in "Risk Parity" investments which, in this pitch by giant investment manager BlackRock Inc., look a lot like hedge fund strategies.

To keep PSERS solvent and invested in hundreds of private-equity, stock, bond, commodities, "risk parity," real estate, "absolute return" (hedge fund), junk debt and foreign investments, Pennsylvania taxpayers pay a surcharge of 30 cents a year on every dollar paid school employees. The cost is split between state taxpayers and local school district real estate taxpayers. Rapid increases in the subsidy for retired school employees has squeezed school budgets across the Commonwealth.

PSERS wasn't the only big pension fund to lose money in 2015. The City of Philadelphia pension system, which is even more underfunded than PSERS, lost -3.1%.

As a result of poor performance, Philadelphia's pension directors fired four of its hedge fund managers earlier this month and ordered three others to negotiate fee cuts.

PSERS appears satisfied with its performance, at least by one measure: The system said yesterday its board unanimously reelected Melva S. Vogler, a retired Wallanpaupack Area High School teacher who lives in Hawley, Wayne County, as its Chairman for the ninth straight year.

Montgomery County, which two years ago fired all of its private money managers and put 90 percent of its funds in low-fee Vanguard Group index funds, reported a gain of +0.3% for its pension investments last year, far ahead of PSERS. Gov. Tom Wolf has said SERS and PSERS would do better to imitate Montco, firing private managers and buying low-fee index funds. Though SERS did a little better than Montco.