Pennsylvania's $30 billion state pension fund — the State Employees' Retirement System (SERS) — made so much money in the stock-market boom over the last few years that it will cut taxpayers' "employer contribution rate" for the first time since 2010, while still boosting total assets.

Does that mean it's time for changes in strategy? "We have turned a corner," chief financial officer Anthony J. Faiola said in a statement Thursday.

SERS' investment assets rose to 61 percent of the state's long-term pension liabilities in 2017, from 56 percent the year before.  That will help SERS go ahead with a projected cut in state pension contributions, to a 32.9-cent surcharge from taxpayers, on top of every dollar paid to a group of state workers in fiscal 2018-19, down from 33.2 percent this year, without weakening the plan.

But SERS isn't waiting for the stock market to repeat that extra-strong performance. Instead, it's pulling back on stocks — and bonds — to invest more in real estate and "private equity" corporate buyout funds like the ones managed by Sixers owners Josh Harris (Apollo Global) and Steve Schwarzman (Blackstone). This reverses a recent trend toward SERS buying more cheap stock and bond-indexed investments.

The switch alarmed State Treasurer Joseph Torsella, who responded Friday with a statement condemning SERS' recent investment focus: "I am deeply troubled by SERS' new asset allocation strategy that will result in an extraordinary 38 percent of total fund assets in illiquid, high-risk, and exorbitantly high-fee 'alternative' investments," he said. "This would be a significant increase from the already high level of 30 percent currently, and would be higher than 85 percent of US pension funds. For a system that has made significant progress recently, this decision will be a real step back."

SERS plans to buy more than $1 billion in additional real estate funds this year and boost its property holdings target by one-third — to 12 percent of total investments, from the current 8 percent — according to the new Investment Plan for fiscal year 2018-19.

Private equity investments would rise to 16 percent, from the current 14 percent. "Multi-strategy" investments, or hedge funds, would rise to 10 percent, from 8 percent.

At the same time, the proportion of SERS investments in U.S. and foreign stocks would be cut to 48 percent, from 53 percent; and the proportion in bonds and other fixed-income instruments would fall to 11 percent, from the current 14 percent.

Real estate, private equity, and hedge funds charge higher fees — 1 to 2 percent of assets invested or more per year, plus a cut of profits above certain targets — though in SERS' case, it's hard to tell how much profit investment managers keep for themselves. That's because SERS declines to report that total, unlike the larger Pennsylvania Public School Employees' Retirement System (PSERS) or the Philadelphia Board of City Pensions, which have begun reporting managers' retained earnings and the fees they collect.

Until recently, SERS had been cutting back on hedge funds and other private investments. Hedge funds failed to hedge against massive market losses in 2008-09, as then-SERS chairman Nicholas Maiale complained. With Gov. Wolf, Treasurer Torsella, State Auditor General Ernie DePasquale, and Attorney General Josh Shapiro all urging state agencies to favor low-fee index funds over expensive private investments, SERS managers had pointed to increases in index-fund commitments.

Not anymore. Earlier this year, SERS transferred $200 million from indexed investments to hedge funds. The new Investment Report projects much larger transfers in the same direction. SERS' updated asset allocation policy, approved by the board Wednesday, "provides a prudent blueprint to continue to meet the long-term liquidity needs to pay benefits and covenants in various market environments," said spokeswoman Pamela Hile. She said it was important for the plan to "diversify" investment assets and be ready for possible "difficult market conditions."

Treasurer Torsella sits on the 11-member SERS pension board, but he is outvoted by legislative appointments who back the new strategy. The board's chairman, David R. Fillman, is a leader of AFSCME District Council 13, whose members receive SERS pensions. Workers' payroll deductions help finance SERS, but most of the system's funding comes from direct taxpayer contributions and investment returns.

Comparing the recent record of Montgomery County's pension system, which only invests in indexed funds, with those like SERS that also buy private investments, it's unclear that either approach has yielded consistently higher profits.

But Torsella and other critics have linked private investments, not only with mediocre returns, but also with conflicts of interest and corruption, given the huge profits private money managers can enjoy. Two of Torsella's predecessors in recent years, former Treasurers Rob McCord and Barbara Hafer, pleaded guilty to criminal charges in connection with cash they were paid by firms which had tried to win state investing contracts.

Torsella also accused SERS board members and their paid consultants of having short memories. "In the event of a major market correction like the one experienced in 2008, large exposure to illiquid assets such as private equity, hedge funds, and real estate funds — where money is tied up for 10 years or more — can be treacherous," Torsella said. "We could find ourselves forced to sell investments at a loss at the very worst time to meet payment obligations.

"We have seen this movie before in Pennsylvania, and it did not turn out well for retirees and taxpayers," the treasurer added. "The losses SERS was forced to realize in 2008 are part of the reason the fund only has [around] 60 cents for every dollar it will need for future payments to retirees."

He called it a "deeply flawed assumption" to expect state investment consultants to "reliably pick winners and losers," and added that most SERS hedge-fund and private equity managers "underperformed their benchmarks" despite their "secretive, complex, and illiquid" investment formulas and fees adding up to hundreds of millions of dollars a year.