Worn power tools, VCRs, patio furniture: Sometimes it's time to load old treasures in the trunk, head to the flea market, and see what you can get for them.

The underfunded Pennsylvania Public School Employees' Retirement System has that kind of problem. As of last year, 35 percent of its $52 billion in pension assets was invested in private-equity funds, real estate, and other private investments you can't trade on the stock or bond markets.

Some of these private investments were quite profitable; some lost money. "When you buy into 100 managers and 200 funds, some will be better, some will not be as good," Charles Spiller, who has headed PSERS private investments since 1997, told me.

Win or lose, private investments have this sad feature: They are hard to unload when you need cash most.

When the stock market tumbled in the last recession and PSERS had to sell investments to pay pensioners, it couldn't find buyers for the private investments. So it had to sell stocks and bonds when prices were way down. Very unprofitable.

When the markets recovered, a shrunken PSERS decided to sell some of the private-equity funds it had invested with firms that buy small, nonpublic companies, in hopes it won't get stuck again the next time investment values head south.

Last month, PSERS quietly sold 20 mostly "underperforming" private-equity portfolios, for nearly $2 billion, to Goldman Sachs, Deutsche Bank, and the France-based investor Ardian.

In all, PSERS says it earned profits averaging about 4.5 percent a year from the 20 private-equity investments it sold.

PSERS says that is better than the broadest stock- market averages have returned over the years. But it's below PSERS's annual target of 7.5 percent, and it's less than PSERS might have made by pumping those billions into

the S&P 500 large-cap U.S. stocks.

So was it worth locking that money away in private equity all those years? Spiller's boss, chief investment officer James Grossman, thinks so: He notes PSERS still owns $5 billion in other private equity that promises stronger returns.

And what does PSERS plan to do with the money it made from selling its other private-equity assets?

Buy stocks, Grossman concluded.


PSERS hasn't announced full details of its private-equity sale. Based on partial data, I was able to confirm sale terms for three portfolios PSERS sold to two buyers.

One buyer was Deutsche Bank. In 2007, PSERS invested $121 million into Malaysia- based Navis Asia Fund V. Navis used investors' money to buy small Asian companies such as a Thai duck ranch.

The investment was profitable. By last summer, PSERS estimated the value of its remaining stake in Navis V at $137 million. Deutsche agreed to pay $129 million, which PSERS accepted to get out of the investment.

In 2006, PSERS began investing $262 million

into Texas buyout king

David Bonderman's TPG Partners V LP.

Two years later, PSERS began investing $188 million in Sweden-based Nordic Capital VII L.P., which owns northern European firms such as the camping-equipment maker Thule.

As of last summer, PSERS estimated its combined remaining investments in TPG V and Nordic VII at $413 million. Goldman Sachs agreed to pay $375 million.