PA state pension to trim private funds, buy stocks and bonds

The $24 billion Pennsylvania State Employees' Retirement System will reverse its decade-long obsession with high-cost private equity, venture capital and hedge funds, and instead and pump more money into stocks and bonds, which will be easier to sell so it can pay future pensions, SERS said in a statement today.

SERS needs more cash as the cost of paying increased pensions to retired legislators, judges, state troopers, state college professors and coaches, prison guards, social workers and other state employees balloons from $2.6 billion this year to an expected $4 billion in 2020.

SERS plans to cut its private equity and buyout fund investments from 25% to just 15% of the fund; and to cut its hedge fund investment target in half, from 18%, to 9%.

By contrast, foreign and US stocks will rise to 39% of SERS' portfolio, from 27%, and bonds will rise to 26%, from 15%; with comparatively little change for real estate or commodities. The fund's massive investments in "alternative" private investments, while generating huge fees for fund managers, some of whom were donors to Govs. Rendell and Ridge, have so far returned less than SERS has invested in them.