FBI Investigates Largest Pennsylvania Pension Fund's Real Estate Buys Near HQ
Real estate is a common investment for sources of institutional capital like pension funds, but one such fund's real estate deals raised the suspicion of federal investigators.
The FBI is investigating a series of purchases by the Pennsylvania Public School Employees' Retirement System, the largest pension fund in the state, the Philadelphia Inquirer reports. PSERS has spent $13.5M on real estate in the immediate vicinity of its Harrisburg headquarters in the past few years through direct investment, breaking from its traditional strategy of investing indirectly through managed funds.
The $13.5M was authorized by the board of PSERS across five votes starting in 2017, with $3M spent on the acquisition of a total of 15 Harrisburg properties, the Inquirer reports. The rest of the funds were spent on other related charges, such as the demolition of buildings standing on some of the parcels. One $5M payment was authorized by the board in a decision not made public, with a letter to PSERS Executive Director Glen Grell that didn't disclose the payment's purpose serving as the transaction's only official record.
The first purchase made as part of the strategy was also the largest, with PSERS spending $1.6M on seven properties, including a former printing press for a local newspaper, the Inquirer reports. The portfolio had sold for $644K six months earlier, which PSERS explained in a statement at the time had "no direct relationship with the true value of the property."
The properties PSERS has purchased are all centrally located in Harrisburg, blocks away from both the Pennsylvania Capitol and the city's Amtrak station. The area has been the subject of a proposed master plan for redevelopment and has been rezoned to encourage development, but PSERS has neither undergone any construction nor disclosed any future plans for the land it bought.
PSERS manages a $64B fund that represents the pensions of 500,000 employees across Pennsylvania. In recent years, it was forced to take contributions from taxpayers and those employees to make pension payments, as its investments severely underperformed. In its most recent fiscal year, PSERS realized a 1.1% return on its investments. The S&P 500 over that time saw a 5.4% ROI, the Inquirer reports.
PSERS disclosed in early April that it had been served subpoenas by a grand jury without specifying the targets of the investigation, the Inquirer reports. Real estate makes up 10% of the system's portfolio, which otherwise is deployed in stocks, bonds and ownership stakes in private companies.