Pennsylvania Pension Fund Paid $1 Billion in Fees to Managers

(Bloomberg) -- Pennsylvania’s largest public pension fund paid $1 billion in expenses to outside managers in fiscal 2017 and should consolidate its investment office with the state employees’ fund, according to a study.

The recommendations come from a state commission report released Thursday that looked at ways to reduce costs at the state’s largest fund, Pennsylvania Public School Employees’ Retirement System, known as PSERS, and the State Employees’ Retirement System, or SERS.

Institutional investors including college endowments and public pensions are seeking to reduce costs by examining fees paid to managers. The report also tackled the issue of how to expand transparency in the funds’ investments and expenses.

Cost Savings

The commission, created by a state law last year, was charged with finding $3 billion in savings in the two pensions over 30 years. The commission found potential savings of as much as $10 billion in the period.

The pensions can reduce costs that will “benefit Pennsylvanians over Wall Street bankers,” Governor Tom Wolf said at a press conference.

PSERS had $55.6 billion under management as of June 30 and SERS had almost $30 billion in assets as of June 1.

Controlling Risk

The commission recommended a consolidated investment office, which would require legislative action, and reducing hard-to-sell alternative assets.

“We can control the risk we take and how much we pay to get those returns,” Treasurer Joe Torsella said at the conference.

The commission sought fees and carried interest payments. The pensions haven’t historically reported carried interest but did so at the commission’s request. SERS reported its expenses but not carried interest because the fund didn’t monitor it internally, according to the commission.

Carried interest is typically 20 percent of a fund’s profits paid to managers and makes up the bulk of their compensation -- when the funds are profitable.

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