The divided trustees of Pennsylvania’s $73 billion school pension fund will start plotting a future without the agency’s longtime leaders at a two-day board meeting that starts Thursday.

The board’s bimonthly investment review will be the first under Robert Devine, the 23-year PSERS veteran named acting chief investment officer as of last week when longtime investment chief James H. Grossman Jr. stepped aside amid federal and internal investigations. Grossman was the architect of the pension fund’s controversial mix of private equity, debt, and real estate investments.

PSERS executive director Glen Grell, 66, and Grossman, 54, announced their retirements on Dec. 2, after sustained criticism by a group of trustees over lagging investment returns. The looming departures come as two federal investigations — by a grand jury reporting to federal prosecutors in Philadelphia, and another by the U.S. Securities and Exchange Commission — remain in progress, and four reports authorized by PSERS itself are soon to appear.

FBI agents in March delivered grand jury subpoenas demanding details about why PSERS — the Public School Employees’ Retirement System — exaggerated its investment returns for 2011 to 2020. The bad numbers had the effect of delaying an increase in school employees’ contributions to the plan until a subsequent correction forced through those higher levies.

Federal prosecutors are also reviewing the agency’s purchase of real estate near its Harrisburg headquarters for redevelopment that never happened.

The SEC is reviewing why PSERS used unaudited data to arrive at those exaggerated investment returns, instead of using its own audited numbers. The SEC is also checking whether gifts exchanged between any of PSERS’s 180 investment advisers and contractors and the fund’s staff may have improperly affected investment decisions.

At least 120 money managers, advisers, and others prepaid PSERS staff travel or covered other expenses from 2017 to 2019. The SEC has subpoenaed records from the office of state Treasurer Stacy Garrity. The SEC is seeking records related to PSERS and the calculation and recalculation of its investment returns, a spokesman confirmed Thursday.

While the federal investigations grind on, the board is also waiting on four other reports that may shed light on PSERS investment issues.

Those include an internal investigation of the investment “miscalculation,” conducted by the Womble Bond Dickinson law firm. Highlights are scheduled to be presented to the board at a special meeting Jan. 18, according to lawyers representing PSERS.

Gov. Tom Wolf and other officials have called on PSERS to make Womble’s report public. Lawyers for the board have warned trustees that any public disclosure on possible management misdeeds could complicate their defense against the federal investigations. The board earlier this month agreed to extend Womble’s contract until June so it can also review matters the SEC is investigating.

Also pending:

  • An analysis of PSERS’s investment management operations by Verus Advisory Services of Seattle, which has been helping the agency manage its billions while Grossman and other staff cope with the probe;

  • A review of the board’s relationship with the staff it is supposed to oversee, by Funston Advisory Services of suburban Detroit, under a contract that grants final review to top PSERS staffers before the board sees it;

  • A detailed internal audit scrutinizing the accuracy of the system’s investment valuations. Board members have been briefed on reporting issues uncovered in its early stages, but a final report is not expected until next year.

Even with Grossman’s departure, his influence is expected to remain on PSERS’s investment agenda, given the yearslong cycle of private investments.

To be sure, trustees voted in August to dump the system’s hedge funds, a class Grossman had championed. But board members said it performed poorly, and urged PSERS to buy more U.S. stocks, pending further review.

PSERS would have made billions more in profits, if it had ignored Grossman’s exotic investment recommendations and invested more in U.S. stocks during the bull markets of the Obama, Trump, and Biden administrations, say Grossman’s critics, including state treasurer Garrity and her predecessor Joe Torsella.

As it stands, PSERS requires $5 billion in taxpayer “contributions” and more than $1 billion from school staff this year.

But new investments that the trustees will consider Friday, the last day of the meeting, include other high-fee investments from Wall Street managers that the agency has used in the past.

The proposed new investments include funds managed by Bain Capital, Brookfield Asset Management, ICG Europe, and Keystone Partners. All had managed money for PSERS in earlier years, and all except Bain presented new investments that Grossman recommended at a June board meeting. But trustees declined even to vote on those in June, amid a push by a minority of trustees to oust him at that time.

Friday’s agenda lists different investments from those same managers, not the ones that failed to win approval six months earlier. PSERS officials did not respond Wednesday to questions about the switch.

Grossman remains “senior adviser” until May 1 when he will retire and start receiving his own state pension after completing 25 years of service. He is the state’s highest-paid employee, and will continue collecting his current salary of $485,000 a year as senior adviser, just as he did while chief investment officer, until he retires.

An interim replacement for Grell is expected soon. Candidates have included Terrill Savidge Sanchez, the former PSERS officer who has recently held the top job at the state employees’ pension system, SERS, and is slated to retire from that job this month, insiders have said. Her spokeswoman, Pamela Hile, would say only that Sanchez “is focused on her remaining time as executive director at SERS.”

With vacancies at the top, will lawmakers who have supported a state commission’s proposal to merge the SERS and PSERS investment offices to cut costs push to make it happen?

Grell and Grossman strongly resisted merger talk.

But a key lawmaker who has backed the combination since a state pension commission recommended it in 2019 says he’s hopeful.

“We’re having a committee hearing in January on [pension] legislation, and I expect them to move after that,” said State Rep. Francis Ryan (R., Lebanon), the PSERS board vice chairman. “Still a lot of issues to work through.”

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