(The Center Square) – Board members overseeing Pennsylvania’s $55.8 billion educator pension fund agreed to drop risky investments from their portfolio, drawing praise from Treasurer Joe Torsella.
"It’s time that more pension funds wake up to the fact that Wall Street has, in many cases, sold them something close to modern-day snake oil,” Torsella said Thursday. “We know what markets will do: they will go up and they will go down. What so many active Wall Street managers have sold our nation’s pension funds on is the idea that – for a hefty set of fees – they can help pensions experience almost all of the gains and none of the losses. We need to recognize that for the fantasy it is.”
The Pennsylvania Public School Employees Retirement System (PSERS), which serves nearly 500,000 current and former educators, unanimously voted Aug. 19 to divest $2 billion from underperforming risk parity funds that Torsella has long argued don’t deliver on their promise to harden portfolios against economic downturns.
“In so many cases, what ends up happening is that the Wall Street managers do worse than fail to deliver value, they end up delivering an expensive failure,” he said. “But even after losses, those high fees stay in the pockets of the money manager, not where they belong, in the pockets of our teachers. PSERS’ recent experience with these funds teaches that expensive lesson once again.”
PSERS lost approximately $5 billion in total value after the pandemic struck Wall Street hard in March. Risk parity investments lost 9 percent of their value alone since the beginning of the year, according to a report from the Pennsylvania Capital Star.
“This move by PSERS is worthy of substantial praise, and shows that Pennsylvania doesn’t have to be at the mercy of expensive and under-performing Wall Street managers,” Torsella said. “We can lead the nation in standing up for our beneficiaries, standing up to Wall Street, and stop the fleecing of our pension funds and taxpayers.”