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A significant shakeup is underway in the private equity team of one of the largest US public pensions, with a wave of departures following changes in the fund’s strategy that would limit its ability to allocate to the alternative asset class. Sources familiar with the matter revealed that four members of the Pennsylvania Public School Employees’ Retirement System (PSERS) private equity investing team are either retiring or pursuing new opportunities.
Among the departures, Darren Foreman, the pension’s director of private equity and co-investments, is set to retire in January. Additionally, Patrick Knapp, Tony Meadows, and Philip VanGraafeiland are exploring new career paths, according to individuals with knowledge of the situation.
While the pension declined to comment on personnel-related matters, it noted that it has a total of 63 investment professionals on staff, with a dozen primarily focused on private markets. As of September 30, the Pennsylvania school pension managed approximately $76 billion in assets, with private equity comprising about $12 billion of its portfolio as of March 31, based on its asset allocation report. The private equity holdings included funds managed by Apollo Global Management, Bain Capital, and Cerberus Capital Management.
Despite private equity’s strong performance for the pension, delivering an impressive almost 13% annualized return over the 10 years through March — the highest among all asset classes according to the fund’s quarterly performance report — the pension found itself over-allocated to this asset class compared to its target. To address this, the fund plans to reduce its private equity investment to bring the allocation down from 17% to the targeted 12%.
This decision aligns with a broader trend observed among public pensions, as many are scaling back their exposure to private equity. The current fundraising environment for buyout firms has become challenging due to such retrenchment by pension funds.
PSERS Chief Investment Officer Benjamin Cotton expressed skepticism about private assets, emphasizing the need to earn a premium for locking funds into non-traded assets. His stance reflects an aversion to paying premium fees without securing a premium return on investment, irrespective of the asset class, according to a PSERS spokesperson. As the pension fund undergoes changes in its investment strategy, the departures from its private equity team underscore the broader challenges faced by institutional investors seeking optimal asset allocation in a dynamic market environment.
