October 2022 Board of Trustees Meeting Summary
The Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened on October 23 and 24, 2022. In attendance were Board members Jason Steliga, Beth Knes, Dr. Kyle Collins, Sharon Kissinger, Dr. Eric Park and Allie Gassmann. Also present were Executive Director Dearld Snider; Assistant Executive Director, Operations Bill Betts; Assistant Executive Director, Investments Craig Husting; General Counsel Sarah Swoboda; Chief Financial Officer Anita Brand; Director of Member Services Nicole Hamler; Director of Employer Services Stacie Verslues; Director of Legislation and Policy Mike Moorefield; Chief Technology Officer Lisa Scheulen; Director of Human Resources Kim Harris; Director of Executive and Board Administration Jennifer Martin; and various other PSRS/PEERS staff members.
Investment Education, Sunday, October 23, 2022
Private Equity Case Studies
Mr. Vincent Dee, Mr. Wayne Smith and Mr. Derek Ransford from Pathway Capital Management (the Systems’ Private Equity Consultant) presented case studies with PSRS/PEERS’ internal investment staff members Mr. John Tuck, Mr. Dan Case and Mr. Ben Frede. The case studies focused on private equity co-investments and private credit direct investments completed by the Systems.
U.S. Equity Program Review
Mr. Frank Aten and Mr. Dan Lane from PSRS/PEERS reviewed the Systems’ U.S. Equity portfolio including program objectives, guidelines and long-term results. The five-year annualized return for the U.S. Equity composite for the period ended September 30, 2022, was 7.6%.
Regular Board Meeting - Monday, October 24, 2022
Approval of Minutes
The open session minutes from the August 28 and 29, 2022 meetings were approved by unanimous vote.
Order of Business
Chairman Steliga congratulated Dr. Kyle Collins on his upcoming retirement July 1, 2023.
Ongoing Investment Activity
Mr. Craig Husting from PSRS/PEERS and Mr. Michael Hall from Russell reviewed ongoing investment activities, which included estimated investment performance through September 30, 2022. The estimated return for the first quarter of fiscal year 2023 (July 1, 2022, through September 30, 2022) was approximately -3.4%. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, reviewing the long-term strategy and broad portfolio expectations.
Proxy Voting Policy
Mr. Husting reviewed the Systems’ Proxy Voting Policy. The Systems’ active public equity investment managers are each responsible for voting proxies in the best interest of the members of the Systems. The managers are required to provide an annual report to the investment staff detailing how their proxies were voted during the year on behalf of PSRS/PEERS. Mr. Husting reported that the Systems received proxy voting reports from all public equity managers for fiscal year 2022. The internal PSRS/PEERS staff has not identified any operational issues with the proxy voting process during the review that was conducted this year and all investment managers are following the policy.
Mr. Husting also discussed recent changes in the proxy voting process with passive investment managers and third-party service providers. The industry shift led to a complete review of the proxy voting process at PSRS/PEERS. Staff will recommend updates to the PSRS/PEERS’ Proxy Voting Policy and to the Systems’ proxy voting process at the December Board meeting.
Private Equity Annual Review
Mr. Vincent Dee, Mr. Wayne Smith and Mr. Derek Ransford from Pathway Capital Management presented several items to the Board, including a Pathway organizational update and a review of the PSRS/PEERS’ Private Equity, Private Equity Co-investment and Direct Credit programs. Pathway reported that the PSRS/PEERS Private Equity portfolio (that Pathway consulted on) had produced an annualized return of 18.8% for the 10-year period ended June 30, 2022. By comparison, the public equity benchmark returned 11.2% over this period.
Report of Actuary
June 30, 2022 Actuarial Valuations
Mr. Brandon Robertson and Ms. Becky Brenza from PricewaterhouseCoopers (PwC), the Systems’ actuary, were present to discuss the results of the June 30, 2022 actuarial valuations for the Systems.
Mr. Robertson provided an overview of the purpose of the annual actuarial valuations and the key components. Ms. Brenza reviewed the June 30, 2022, actuarial valuation information prepared by PwC. Ms. Brenza reviewed the changes in membership, assets, liabilities and the pre-funded status of each System. She reported that the June 30, 2022 preliminary pre-funded status based on the actuarial value of assets of PSRS was 85.2% and PEERS was 87.3%. The funded status of both Systems is viewed to be healthy and a result of appropriately set actuarial assumptions, consistent funding of the recommended contributions and diligent plan governance.
Mr. Robertson and Ms. Brenza reviewed recent key developments, preliminary projections, risks and considerations. They specifically identified the Systems’ investment return and cost-of-living-adjustment (COLA) assumptions as the two most sensitive assumptions in determining the overall financial health of the Systems and future actuarially determined contribution rates. If any of the following scenarios occur, the liabilities of the Systems will increase, which may require an increase in contribution rates: additional shortfall in asset returns compared to the assumed rate of return; inflation that is higher than expected in the near-term resulting in larger COLA payments, and long-term inflation increasing and resulting in an increase in the long-term COLA assumption. However, if all assumptions are met, the current contributions will continue to be sufficient in the near-term.
Set Contribution Rates for Fiscal Year 2023-2024
The Board voted unanimously to maintain the contribution rate for PSRS at 29% and PEERS at 13.72% for fiscal year 2023-2024, as recommended by the actuary. Mr. Robertson and Ms. Brenza from PwC indicated that the margin for adverse experience has been eliminated due to the 2023 5.0% COLA and the fiscal year 2022 investment return that was below the assumed rate of return. They further cautioned that if actuarial assumptions are not met during fiscal year 2023 and additional liability or asset losses occur, contribution rates may need to increase in the near future.
Set January 2023 Cost-of-Living-Adjustment (COLA)
In accordance with the Systems’ Funding Policy and the recommendation of the actuary, the Board voted unanimously to grant a 5% COLA for January 2023.
Ms. Jennifer Martin gave an update on the election schedule. The petition forms became available today, October 24th. All petitions must be either postmarked or received in the PSRS/PEERS office by Thursday, December 8. We should know at that time if we will have a contested election.
|Notices and information to organizations for their publication deadlines||October 3, 2022 (Monday|
|Official Notice to all employing units||October 3, 2022 (Monday)|
|Petition forms available||October 24, 2022 (Monday)|
|Bids on election process||October 20221|
|Nominating petitions - postmark deadline||December 8, 2022 (Thursday)|
|Petition signature audit and certification||the week of December 19th (TBD)|
|Ballots mailed to members||January 13, 2023 (Friday)|
|Electronic voting deadine and ballots due - postmark deadline||January 28, 2023 (Saturday)|
|Official count and certification||February 15, 2023 (Wednesday)|
|1 Not applicable. We will use RFP received for February 2022 Election since it's been under 1 year.|
Mr. Dearld Snider from PSRS/PEERS reviewed the COLA policy that was set by the Board of Trustees at their November 3, 2017, meeting. According to the policy, COLAs may be granted based on the CPI-U as follows:
|CPI-U||COLA per Board-Approved Funding Policy|
|Less than 0.0%||0.0%|
|0.0%-2.0%||0.0% when CPI-U is cumulatively below 2.0%|
|0.0%-2.0%||2.0% when CPI-U cumulatively reaches 2.0% or more*|
|2.0%-5.0%||2.0% when the CPI-U is at least 2.0%, but less than 5.0%|
|5.0% or more||5.0%|
|*resets cumulative calculation after a COLA is provided|
Mr. Snider explained that the Consumer Price Index for Urban Consumers (CPI-U) is calculated by the Bureau of Labor Statistics (BLS). The CPI-U is the measure of the change in prices of goods and services purchased by urban consumers between any two time periods. PSRS/PEERS’ regulation requires that the time period for the CPI-U calculation used in the determination of a COLA be from June to June. Based on the values provided by the BLS, the CPI-U is up 0.1677% through September 30, 2022.
The October reading for the CPI-U will not be released until November 10, 2022.
The Board went into closed session at 10:28 a.m.
The Board adjourned at 12:44 p.m.
This summary is not official minutes of the PSRS/PEERS Board of Trustees meeting. The official minutes will be approved at the next PSRS/PEERS Board of Trustees meeting and will posted to our website at that time.