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Senate Co-Sponsorship Memoranda
Senate of Pennsylvania
Session of 2023 - 2024
Regular Session
MEMORANDUM
| Posted: | January 11, 2023 06:22 PM |
|---|---|
| From: | Senator Katie J. Muth |
| To: | All Senate members |
| Subject: | Cap Public Pension Investments in Non-Public Markets |
| In the near future, I will be introducing legislation that would implement a cap on the amount of Pennsylvania's public pension funds that can be invested in non-public markets, such as hedge funds, private equity firms, and other alternative investments. Since the beginning of 2021, the Pennsylvania Public School Employees’ Retirement System (PSERS) has paid out more than $1.7 billion in fees, profit-sharing, and other expenses to Wall Street money managers from more than 50 outside firms. These expenses were far higher in 2021 than previous years due mostly to extra-large profit sharing, as private equity managers cashed out nonpublic companies they owned at premium prices. According to industry data, PSERS pays more in fees than most other state pension systems, which generally pay more than private companies with retirement plans. However, PSERS investment returns have tended to trail the performance of the overall market. For example, reports indicate that the system’s investments in these non-public markets performed poorly compared to if they were invested in an index fund that followed the S&P 500: 6.38 percent versus 10 percent. PSERS is not alone in their alternative investments. In fiscal year 2021-2022, the Pennsylvania State Employees’ Retirement System (SERS) invested $810 million in private equity funds. Experts have concluded that private equity entities lack the transparency obligations of public pensions because the pension systems often lack the knowledge about how to oversee or properly monitor private equity investments, do not know what they are investing in, do not know what fees they are paying, and/or do not fully know the risk they are taking on. Further, private equity investment contracts do not disclose all of the necessary information regarding where money will be invested, how it will be invested, and the fee rates of co-investors and limited partners. Research has shown private equity consistently failed to outperform the markets, in spite of charging massive fees. Co-sponsor this legislation to reduce risk and protect the retirement funds of our state’s hard-working public employees. |
Memo Updated: January 11, 2023 06:23 PM