Key Takeaways
- • Pennsylvania's $72 billion Public School Employees Retirement System (PSERS) has become a central political issue in the GOP Senate primary, with candidate Mehmet Oz attacking rival David McCormick over the fund's underperformance and investment strategy choices.
- • McCormick, a billionaire hedge fund manager and former CEO of Bridgewater Associates, directed PSERS to invest in Bridgewater's "risk parity" funds beginning in 2012, with the fund allocating slightly more than 1% of assets to the strategy and establishing a second similar fund in 2015.
- • PSERS faced a significant financial setback in 2020 that resulted in approximately 100,000 teachers being required to make additional contributions to cover the shortfall, while critics allege the fund's investment strategy has forced property tax owners to pay at least $460 million more in property taxes to local school districts.
- • The fund's broader investment portfolio has drawn scrutiny from good government advocates and teachers' groups for unconventional allocations including Iraqi oil fields and prison phone call systems, alongside concerns about excessive globe-trotting travel expenses.
- • Despite management fees of approximately $700 million paid to Bridgewater between 2004 and 2021, the relationship generated $4.1 billion in returns for the pension system during that period, though recent underperformance has become a vulnerability for McCormick's Senate candidacy.
Summary
Pennsylvania's $72 billion teacher pension fund has emerged as a flashpoint in the state's competitive Republican Senate primary, with the fund's investment strategies and performance now serving as ammunition in the campaign battle between heart surgeon-turned-television host Mehmet Oz and billionaire hedge fund manager David McCormick. The dispute centers on PSERS' relationship with Bridgewater Associates, the Connecticut-based financial services firm where McCormick worked from 2009 until 2022, first as president and later as CEO.
Beginning in 2012, PSERS allocated slightly more than 1% of its assets to a specialized Bridgewater investment vehicle designed to perform well during market downturns, employing a strategy known as "risk parity." The fund subsequently established a second similar arrangement with Bridgewater in 2015. Oz has seized on the relationship as evidence of mismanagement, stating at a news conference outside PSERS' Harrisburg office that "Dishonest David got rich, we got stuck with the bill," characterizing McCormick's involvement with the pension fund's investment decisions as directly responsible for financial burdens on Pennsylvania's residents.
The criticism carries material weight. A performance shortfall in 2020 has required approximately 100,000 teachers to make additional contributions to cover losses, placing the burden of poor returns directly on fund members. Beyond individual teacher contributions, critics have claimed that PSERS' broader investment strategy has forced property tax owners to shoulder at least $460 million in additional property tax payments to local school districts to compensate for underperformance. These fiscal pressures have drawn sustained criticism from good government advocates and teachers' organizations concerned about the fund's unconventional investment allocations, which have included positions in Iraqi oil fields and prison phone systems, alongside questions about travel expenditures.
The historical relationship between PSERS and Bridgewater presents a complex financial picture. Over the 2004-2021 period, Bridgewater generated approximately $4.1 billion in returns for the pension system while collecting roughly $700 million in management fees—a relationship that initially appeared productive but has become increasingly contentious as recent underperformance has raised questions about the investment strategy's effectiveness. The pension fund controversy underscores broader concerns about Pennsylvania's public pension system, which has faced structural underfunding challenges since 2001 when lawmakers retroactively increased pension benefits without ensuring adequate employer contributions.
Beginning in 2012, PSERS allocated slightly more than 1% of its assets to a specialized Bridgewater investment vehicle designed to perform well during market downturns, employing a strategy known as "risk parity." The fund subsequently established a second similar arrangement with Bridgewater in 2015. Oz has seized on the relationship as evidence of mismanagement, stating at a news conference outside PSERS' Harrisburg office that "Dishonest David got rich, we got stuck with the bill," characterizing McCormick's involvement with the pension fund's investment decisions as directly responsible for financial burdens on Pennsylvania's residents.
The criticism carries material weight. A performance shortfall in 2020 has required approximately 100,000 teachers to make additional contributions to cover losses, placing the burden of poor returns directly on fund members. Beyond individual teacher contributions, critics have claimed that PSERS' broader investment strategy has forced property tax owners to shoulder at least $460 million in additional property tax payments to local school districts to compensate for underperformance. These fiscal pressures have drawn sustained criticism from good government advocates and teachers' organizations concerned about the fund's unconventional investment allocations, which have included positions in Iraqi oil fields and prison phone systems, alongside questions about travel expenditures.
The historical relationship between PSERS and Bridgewater presents a complex financial picture. Over the 2004-2021 period, Bridgewater generated approximately $4.1 billion in returns for the pension system while collecting roughly $700 million in management fees—a relationship that initially appeared productive but has become increasingly contentious as recent underperformance has raised questions about the investment strategy's effectiveness. The pension fund controversy underscores broader concerns about Pennsylvania's public pension system, which has faced structural underfunding challenges since 2001 when lawmakers retroactively increased pension benefits without ensuring adequate employer contributions.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.