Real estate helps reduce pension system losses

//March 16, 2016

Real estate helps reduce pension system losses

//March 16, 2016

The nation’s 20th-largest state-sponsored pension fund finished with a return of negative 1.8 percent for the one-year period that ended Dec. 31, 2015.

Real estate was one of the few bright spots. That asset class has returned 9 percent over the year, according to PSERS.

Oil-related asset classes like commodities and master limited partnerships were down nearly 18 and 33 percent, respectively, over the year, according to PSERS.

“The 2015 calendar year was a challenging year for investors, even for those with a highly diversified portfolio like PSERS,” said James Grossman Jr., chief investment officer for PSERS.

By comparison, the State Employees’ Retirement System, which operates on the calendar year, finished 2015 with a return of 0.4 percent.

The assumed rate of investment return for both systems is 7.5 percent per year.

But wait, there is a silver lining to the market volatility and sluggish investment performance. Investment expenses at both PSERS and SERS have continued to drop.

For its 2015 fiscal year, PSERS reported investment management expenses of $455.2 million. That was down more than $102 million over two years.

SERS posted investment expenses of $159 million in 2015, down more than $16 million over two years. Since 2010, investment management fees have dropped by more than $76 million at SERS.

Those savings are not nearly enough compared with the rising unfunded liabilities of the two systems. Combined, those liabilities are expected to be more than $58 billion this year, according to the Wolf administration. 

But progress is still progress. Broader reforms, which might produce long-term savings, should still be considered for state and municipal pension plans.

Yes, I know we’ve been down that road a lot in recent years with plenty of hybrid models and other proposals to “fix” the system once and for all.

It’s still worth having those discussions, even if policymakers can’t agree on much of anything right now. They got a major transportation funding bill done a few years ago. What’s the next big item to come off the legislative checklist?