Market volatility and political pressure force the decision

The $29 billion Pennsylvania State Employees’ Retirement System has decided to reduce both its rate of return as well as allocations to hedge funds.

The SERS lopped its long-term assumed rate of return from 7.25% to 7.125%, citing the current choppy market environment.

The fund also shifted money out of its hedge fund category and into bonds, pending further evaluation of strategies.

Politicians want lower offered returns and lower investment manager fees

State politician and Treasurer Joe Torsella has been a votary of lower assumed rates of return at the SERS and welcomed the decision by its Board.

“By modestly reducing the assumed rate of return and reducing allocation to costly alternative hedge funds, SERS can reduce risk to the fund and improve security for beneficiaries,” said Torsella.

Meanwhile Pennsylvania Democrat Gov. Tom Wolf has been known for his preference for low-cost index funds over high-fee investment managers at hedge funds.

First quarter 2019 performance

The Pennsylvania SERS posted a return of 8.2% for the first quarter of 2019.

Global public equity earned 12.9% while hedge funds generated (7.1%), real estate (4.3%), bonds (3.7%), private equity (0.6%), and cash (0.4%).