Fate of PSERS top executives up in the air ahead of Friday’s meeting
// Timestamp 06/11/21 10:00am
Six board dissidents, upset at the PSERS fund’s lackluster returns, called on Thursday morning for the 15-member board to fire its executive director, Glen Grell, and its investments chief, James H. Grossman Jr.
The critics says Grossman, a 24-year PSERS employee paid $485,000 yearly, the most in state government, and his 50-member investment team have put together a mindbogglingly complex investment portfolio that puts far too much money into private-equity firms, hedge funds, venture-capital projects and start-ups. They say this kind of investment is to value and hard to get your money out of and comes with excessive fees
In short, they recommend a simpler index-based investments, akin to those pioneered by by Vanguard.
But Grossman came out swinging Thursday afternoon at the board meeting at the PSERS fund’s office that began only hours after his detractors delivered to the board’s chairman their written demand for his dismissal.
Grossman told the board that one of his bets had just hit the jackpot — on paper, at least. An $85 million PSERS investment, Grossman said, in a California maker of high-fashion nurses’ uniforms was worth $329 million now that the start-up had sold its shares to the public. Grossman acknowledged that PSERS, as an insider, could not sell its shares and cash in the winnings until November, at the earliest.
Such a dismissal vote is not on the agenda today, but any board members can call for votes on any issue. It remained unclear whether the six critics had picked up the two votes needed to form a majority on the 15-member board and force the terminations.
On Thursday, when Grell was asked about the campaign to oust him and Grossman, Grell responded, “I don’t know what you’re talking about,” and walked away.
— Joseph N. DiStefano and Craig R. McCoy
Two controversial investments totaling $1.2 billion up for consideration Friday
// Timestamp 06/11/21 9:30am
With a demand that PSERS top executives be fired hanging in the air, those beleaguered leaders on Thursday continued to urge Pennsylvania’s largest pension fund to double down on their controversial investment strategy — by pouring $1.2 billion more into “alternative” investments promoted by high-fee Wall Street advisers.
Among the investments up for consideration Friday, one involves a company that is Philadelphia’s largest private-equity investor. Another drew attention for its deals involving a New York skyscraper once owned by the family firm of former President Donald Trump’s son-in-law, Jared Kushner. Here is a look at those two proposed deals:
LEM Multifamily Fund VI.This is the latest fund from LEM Capital, the big Philadelphia private-equity firm that invests in aging apartment complexes. LEM says its strategy is to “add value and increase rents.” Its owners include Ira Lubert, a principal in the Rivers Casino in Pittsburgh and a former board chairman for Penn State University.
PSERS has invested $210 million in other LEM funds over the last 15 years and gotten back $232 million, as of last June, with hopes of more to come. As with other private deals, it’s hard to say how good the final returns are until the investment is complete. The fund paid the firm more $8 million in fees in fiscal 2019, the last year reported.
LEM is just a sliver of PSERS’ involvement with Lubert. Over the last 20 years, it has paid more than $200 million in fees to a variety of funds he has founded.
Brookfield Strategic Real Estate Partners IV. This is the latest fund from Brookfield Asset Management, a giant Toronto-based hedge-fund manager. PSERS has committed more than $600 million to earlier Brookfield funds since 2012, and as of June 30 gotten about $400 million of that back. Last year, PSERS paid Brookfield more than $14 million in fees.
Brookfield invests in office buildings around the world. One of Brookfield’s best-known investments, by an earlier fund that included money from PSERS, was its reported $1.3 billion payment in 2018 to a company connected to the Kushner family for control of a troubled office tower at 666 Fifth Ave. The Kushners had paid $1.8 billion for the tower back, but were having trouble keeping tenants.
PSERS put $80 million in the Brookfield fund that invested in 666 Fifth, one of many properties in that fund. PSERS estimates the value of its stake had fallen to $77 million.
To be sure, PSERS investments in earlier Brookfield funds, in 2012 and 2015, have earned double-digital profits as real estate prices went up in recent years, the pension plan says. Much of that gain is still just on paper, as Brookfield has yet to sell the those properties at their estimated new, higher prices.
— Joseph N. DiStefano and Craig R. McCoy
What is PSERS?
// Timestamp 06/11/21 9:15am
PSERS is the Pennsylvania Public School Employees’ Retirement System.
It sends out more than $6 billion in checks yearly to 265,000 former teachers and other retired staff from public schools.
About 250,000 working employees pay into the fund, in unusually hefty deductions.
Though it has $64 billion in assets, PSERS is chronically underfunded with a deficit of $40 billion.
Much of its fiscal troubles dates back to 2001 when state lawmakers sweetened all state workers’ pensions — including their own — thinking that the hot stock market of the 1990s would never cool down.
They were wrong about that, but never enacted measures to pay for their promises.
Currently, the plan takes in about $10 billion a year — $5 billion from taxpayers, $1 billion from working teaches and $4 billion from investment profits.
Even so, the long-term deficit looms and retirees haven’t had a cost of living increase in nearly 20 years.
— Craig R. McCoy