PSPRS Investment Strategy
With a current value of $11.2 billion, the Public Safety Personnel Retirement System trust’s portfolio is designed to produce solid investment returns while reducing the risk of losing money. This approach is taken to ensure that the system’s 60,000 members and retirees receive the benefits promised them and that 302 participating employers’ contributions grow over time to cover those benefits.
After two stock market crashes in the 2000s, the PSPRS investment team developed a strategy that does not rely on an assumption of long-term bull markets. Instead, the strategy anticipates economic slowdowns and market crashes by balancing the PSPRS portfolio with investments that are not correlated to financial markets. For example, while PSPRS is invested in public and private equities to help ensure the portfolio benefits from good market conditions, it also invests in some sectors that will remain strong despite poor market conditions (including utilities, pharmaceuticals, credit, etc.). With this strategy, the PSPRS portfolio will not perform as well as stock-heavy portfolios during good market conditions, but it won’t lose value to the same extent as other pensions under poor market conditions. This strategy has proven effective: Most recently, the S&P 500 lost 14 percent of its value in December 2018 and 6.59 percent overall for 2018 while the PSPRS portfolio gained 0.59 percent in value.
The cornerstone of the trust’s investment strategy is its allocation over three asset classes. On June 26, 2019, the board approved the asset allocation. It was designed to balance the trust’s ability to take on investment risk with its mission to provide benefits regardless of market conditions. The three asset classes are:
• Capital appreciation – This asset class contains investments that translate growth in the economy to growth of the trust’s assets. Investments include publicly-traded U.S. and international stocks, real estate, and different types of private equity (including venture capital and buyout funds).
• Contractual income – For these investments, a contractual relationship generates the return. Investments in this class include investment-grade bonds, private debt, and royalty payments. Twenty-five percent of the trust’s portfolio is allocated to this asset class.
• Diversifying strategies – Investments designed to generate positive returns over time with low correlation to traditional asset classes (including stocks and bonds). These strategies seek to profit from market inefficiencies, price dislocations, and relative value trading. The goal for this portfolio is to broaden the sources of investment returns, add diversification benefits, and limit losses in down markets. Twelve percent of the trust’s portfolio is allocated to this asset class.
The PSPRS investment team is staffed with professionals who are regularly recognized for their achievements and innovations. These recognitions include:
• A 2019 study by The American Investment Council determined that PSPRS had the fifth highest public equity returns of 165 U.S. public pension funds.
• In 2018, Trusted Insight magazine named portfolio managers Shan Chen and William Thatcher as two of the nation’s “Top 30 Public Pension Institutional Investors.”
• In 2017, Institutional Investor magazine named PSPRS “Allocator of the Year.”
• In 2016, PSPRS was a finalist nominee for Institutional Investor magazine’s “Small Public Pension Plan of the Year.”