Alternatives, Asset Allocation, Defined Benefit, Institutional Investors, Pension Funds, Private Equity, Public Funds

IA Strategy: Minnesota Endorses $1B Private-Markets Recommendation

The Investment Advisory Council of the Minnesota State Board of Investment (MSBI) has given the thumbs up to a staff recommendation that MSBI make commitments to eight private equity funds, totaling approximately $1 billion.   

At a May 20 meeting, the Investment Advisory Council, which provides advice to the $96 billion MSBI and its Executive Director, “endorsed” staff recommended commitments in private equity vehicles managed by European sponsors or focused on the region. The vehicles are: Apax Partners Fund X (150m); IK Investment Partners Fund IX (€135m); KKR European Fund V ($100m); Permira Fund VII (€135m); TPG Capital Fund VIII (150m); Warburg Pincus WPC-SEA II ($50m); LBC Credit Partners V ($100m); and Energy & Mineral Group Fund V & Accordion ($150m).

Mansco Perry, Executive Director and CIO, Minnesota State Board of Investment

“Our process is we have an advisory council; and at our quarterly meeting they endorsed staff recommendations for these commitments, but they have to be approved by the Board,” according to Mansco Perry, MSBI Executive Director and CIO. He added that the Board meeting “at which the commitments might be approved” is scheduled for May 30.

No consultant was used in the selection of the eight funds, which was staff led, Perry said.

MSBI’s target allocation to private equity is 25%; its current allocation stands at 15-16%, according to Perry, who explained that because the new commitments, if made, would be drawn down over the next three to seven years, changes to the fund’s overall allocation to the class will be negligible.  “We make commitments on a quarterly basis. This is just the normal course of business for us. Our current commitment pacing is approximately $3.5 billion per year. We have a mature program, having made our first alternative investments in 1981.”

Perry characterized the Investment Advisory Council’s endorsement of such a large allocation to PE as simply part of the fund’s portfolio process. “Most allocators are at the mercy of the market and whether desired managers are available,” he said, adding, “Every quarter we make commitments to the class. All the managers we are considering now we have dealt with for some time—they are already in our portfolio; these are not first-time commitments. We are looking to allocate to managers all the time. Our selection process considers both current and potential managers that are in the fund-raising mode. Many of our new commitments are with current managers with which we have a relationship.” He noted the MSBI is currently invested in some 250 private market funds, run by approximately 100 managers.

A private markets due diligence survey report published by eVestment last week found that institutional investors are now tempering their expectations for the asset class’ returns. Competition for deals is the number one concern for both investors and fund managers, while close to two-thirds of investors and fund managers expect a market correction within the next two years, the survey found.

Regarding MSBI’s comfort with the pricing it’s securing in the PE market, Perry said that “given that MSBI manages in excess of $70 billion in pension assets, making a $1 billion commitment in a quarter, that will be drawn over the next three to seven years, it’s not really moving the needle. We’re trying to dollar-cost-average our way to the exposure we want. And the truth is, over the last five to six years managers have distributed back to us more than managers have drawn down during that time.”

You may also like...