(Bloomberg) — A group of trustees at Pennsylvania’s biggest pension is seeking to oust the $64 billion fund’s leadership, citing what they called “poor investment performance,” the latest difficulty at the fund that focused heavily on alternative investments like private equity.
The letter comes days after one of the members of the board of the Pennsylvania Public School Employees’ Retirement System, state Senator Katie Muth, sued to gain access to documents that she said have been withheld amid a federal investigation into the pension plan.
On Thursday, six board members sent a letter to the full board urging it to hold a vote to oust Chief Investment Officer James Grossman Jr. and Executive Director Glen Grell. The board members say their duty to the teachers and other school employees that are beneficiaries of the fund compelled them to request the termination of the fund’s leadership.
“We write to express our loss of trust and confidence in the ability of the executive director and the chief investment officer to effectively manage and administer the retirement fund,” the letter said. “Those who have dedicated their career to public education, people who are the heart and soul of this Commonwealth, deserve better.”
Emails to Grossman, Grell, and a representative for the fund were not immediately returned.
Lagging Returns
The fund allocated 62.6% of its assets to alternative investments like real estate and private equity, more than double the average for other public pensions, or union or corporate plans, according to the letter. In fact, the board is meeting this week to discuss approving about another $1.2 billion of investments in additional alternative investments, the letter said.
Relying on these kinds of money managers hasn’t resulted in higher or more stable returns, according to the letter. If the plan’s performance had been as good as the median for public pensions, it would now have closer to $67.7 billion, and if it had performed as well as the top quartile, it would have more than $80 billion, the letter said. The pension plan has paid $4.3 billion in fees and related fund expenses to external managers over the past four fiscal years — while over the same period members paid $4.2 billion into the plan.
Because of the pension’s lagging performance, over the next three years the state’s teachers will have to contribute more than $80 million to the plan from their paychecks beyond what they would otherwise have paid, according to the letter.
Those extra payments are part of what triggered the federal probe into the pension plan. PSERS disclosed in March it misstated its returns for the nine years ended June 2020. The subsequent revision amounted to a difference of just 0.04 percentage point, but it was enough to force some employees that pay into the pension to boost their contributions starting in July.
A U.S. grand jury is investigating what went wrong, as is the fund’s internal probe. The Federal Bureau of Investigation is looking for evidence of kickbacks or bribery, according to the Philadelphia Inquirer. Prosecutors are also looking into the pension’s purchase of real estate near its headquarters in the state capital of Harrisburg, the newspaper reported.
The letter on Thursday said that it is seeking to change leadership purely because of persistent underperformance and repeated governance failures over the last 10 years, saying “our advocacy for this management change should not be interpreted to suggest that individual wrongdoing, as it relates to the Federal investigations, has occurred.”
Read more: Pennsylvania Pension Sued by Board Member Over Disclosure
The letter asks the other board members to hold a vote and oust leadership, install an interim executive director and expand the use of consultant Verus Investments as a temporary outsourced chief investment officer.
State Treasurer Stacy Garrity, her predecessor Joe Torsella and Muth are among the signatories to the letter.
(Updates from first paragraph with detail about investments and investigations)
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