Pennsylvania PSERS weighs three commitment pacing plans

The Pennsylvania Public School Employees’ Retirement System (PSERS) is considering three separate pacing plans for its private credit programme, according to documents from the Harrisburg-based pension plan’s October meeting.

Among the allocation blueprints are projections for annual commitments of $400 million, $550 million and $700 million. Each is accompanied by projections of private credit’s asset allocation using scenarios under annual plan growth rates of 0 percent, 1 percent and 2 percent. No vote was taken.

For 2019, PSERS has set aside $600 million for commitments to the asset class, for which it has a 10 percent target. Should the plan experience no increase in its $57.7 billion in assets over the next year, private credit’s asset allocation would increase from its current 9.2 percent to 9.9 percent. Under growth of 1 percent or 2 percent, it would increase to 9.8 percent.

For the $700 million pacing plan, under a no-growth scenario, the asset allocation would rise to 10.9 percent by 2024. Under a 1 or 2 percent growth scenario, it would increase to 10.3 or 9.8 percent, respectively. For the $550 million pacing plan, those figures were 10.4 percent, 9.8 percent and 9.3 percent. For the $400 million annual commitment model, it was 9.8 percent, 9.3 percent and 8.8 percent.

Under less conservative scenarios though, PSERS could be materially below its allocation target for the asset class.

“So again, this being the belief that the plan grows at 2 percent,” Sean Barber, a staff member at PSERS investment consultant Hamilton Lane, told the board. “Even if the plan were to grow closer to where you ultimately [are achieving] a realised five-year return at 6 percent at $700 million annually, you’d be well below your 10 percent allocation target to private credit.”

This year, PSERS has committed to three special situations and distressed debt funds: Clearlake Opportunities Partners II ($100 million), a fund managed by Clearlake Capital Group targeting small and mid-sized companies; Searchlight Capital III ($150 million), a vehicle managed by Searchlight Capital Partners targeting North American and European businesses; and Bain Capital Distressed and Special Situations Fund 2019 ($200 million), a fund managed by Bain Capital Credit targeting global investments.

PSERS is a defined-benefit plan serving public school employees through the state of Pennsylvania.