Key Takeaways
- • Penn PSERS approved a passive public equity mandate of up to $25 billion with BNY Investments, with an initial allocation of approximately $16 billion to a U.S. equity strategy tracking the S&P 1500 and $4 billion to a developed markets ex-U.S. strategy tracking the MSCI World ex-U.S. index.
- • The initial $16 billion commitment equals more than 13% of the $123.4 billion AUM of BNY's S&P 1500 Index strategy, a concentration staff judged mitigated because passive mandates are a commoditized product that can be efficiently transitioned to another manager.
- • The index selections mean PSERS will have no exposure to SpaceX following its recent IPO, since S&P Dow Jones indexes require at least 12 months of public trading and GAAP profitability before inclusion.
- • The board also authorized commitments of up to EUR 100 million ($115.2 million) to PAI Mid-Market Fund 2 and up to $75 million to TPG Peppertree Fund XI-A, and approved contract negotiations with Cerity Partners Retirement Plan Advisors.
Summary
The Pennsylvania Public School Employees' Retirement System (PSERS) approved a passive public equity management mandate of up to $25 billion with BNY Investments, according to Chief Investment Officer. PSERS will initially invest approximately $16 billion in a passive U.S. equity mandate delivered through collective investment trusts (CITs) that track the Standard & Poor's 1500 Index. Another $4 billion will go to a developed markets ex-U.S. equity mandate tied to the MSCI World ex-U.S. index.
The index selections carry a notable implication: PSERS will have no exposure to SpaceX following its recent initial public offering. The S&P 1500, like all S&P Dow Jones indexes, will not add the company until it has been public for at least 12 months and shows profitability under generally accepted accounting principles. The MSCI benchmark excludes U.S. companies, so it would not include the company either. Chief Investment Officer reported that other index providers have adjusted their inclusion criteria to add the company sooner.
PSERS staff reviewed three risks in their analysis for the board: benchmark mismatch, concentration risk, and CIT structure risk. The memo, written by Carl Lantz, director of the PSERS investment office, and Steven Heuer, a senior portfolio manager, cited BNY mitigants including individual stock liquidity and trading cost information, disciplined risk controls, and minimized tracking error through index replication. On concentration, the staff noted that the $16 billion commitment exceeds 13% of the $123.4 billion AUM of BNY's S&P 1500 strategy, but argued the product is commoditized and can be efficiently transitioned to another manager. On structure, the staff wrote that CITs have their own compliance and risk control operations at BNY, while separately managed accounts do not.
PSERS Board of Trustees Vice Chair Susan Lemmo said in a statement that BNY Mellon has been a trusted partner to PSERS and the Commonwealth of Pennsylvania for more than three decades, and that the board looks forward to expanding the relationship. The board also authorized commitments of up to EUR 100 million ($115.2 million) to PAI Mid-Market Fund 2, which will seek controlling interests in 11 to 13 "real economy" companies, and up to $75 million to TPG Peppertree Fund XI-A, based on the recommendation of private equity portfolio manager Jennifer Sassani. The board also greenlit contract negotiations with its general investment consultant, Cerity Partners Retirement Plan Advisors, with Board Chair Richard Vague citing the firm's institutional experience. Separately, Eric DiTullio was re-elected unopposed as the school board representative on the trustee board for a term running from January 1, 2027 through December 31, 2029.
The index selections carry a notable implication: PSERS will have no exposure to SpaceX following its recent initial public offering. The S&P 1500, like all S&P Dow Jones indexes, will not add the company until it has been public for at least 12 months and shows profitability under generally accepted accounting principles. The MSCI benchmark excludes U.S. companies, so it would not include the company either. Chief Investment Officer reported that other index providers have adjusted their inclusion criteria to add the company sooner.
PSERS staff reviewed three risks in their analysis for the board: benchmark mismatch, concentration risk, and CIT structure risk. The memo, written by Carl Lantz, director of the PSERS investment office, and Steven Heuer, a senior portfolio manager, cited BNY mitigants including individual stock liquidity and trading cost information, disciplined risk controls, and minimized tracking error through index replication. On concentration, the staff noted that the $16 billion commitment exceeds 13% of the $123.4 billion AUM of BNY's S&P 1500 strategy, but argued the product is commoditized and can be efficiently transitioned to another manager. On structure, the staff wrote that CITs have their own compliance and risk control operations at BNY, while separately managed accounts do not.
PSERS Board of Trustees Vice Chair Susan Lemmo said in a statement that BNY Mellon has been a trusted partner to PSERS and the Commonwealth of Pennsylvania for more than three decades, and that the board looks forward to expanding the relationship. The board also authorized commitments of up to EUR 100 million ($115.2 million) to PAI Mid-Market Fund 2, which will seek controlling interests in 11 to 13 "real economy" companies, and up to $75 million to TPG Peppertree Fund XI-A, based on the recommendation of private equity portfolio manager Jennifer Sassani. The board also greenlit contract negotiations with its general investment consultant, Cerity Partners Retirement Plan Advisors, with Board Chair Richard Vague citing the firm's institutional experience. Separately, Eric DiTullio was re-elected unopposed as the school board representative on the trustee board for a term running from January 1, 2027 through December 31, 2029.
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