Kansas commits to Ares as it builds portfolio

KPERS carved out a separate private equity allocation in 2007 and has been slowly working to build exposure to the asset class. At a time when many other US public pensions are trimming back their portfolios, Kansas has room to grow.

The Kansas Public Employees Retirement System continued to build its private equity portfolio at its most recent board of trustees meeting, committing up to $25 million to Ares Corporate Opportunities Fund IV. The commitment was approved by the retirement system’s board of trustees pending a final review of partnership documents, according to KPERS.

The $13.5 billion retirement system has a relatively small allocation to alternative investment strategies, only 2.8 percent on a 6 percent target. However, Kansas expects to build its private equity portfolio to meet the allocation over the next few years, according to its 2011 fiscal year report.

The retirement system launched its private equity programme in 2007, and is seeking investments in buyout, venture capital, growth equity, special situations, distressed debt, mezzanine, natural resources and secondary funds. In FY 2011, Kansas committed $120 million across five private equity funds, including allocations to Centerbridge Partners, Platinum EquitySnow Phipps Group and Monatgu Private Equity.

The pension system’s senior investment officer for private markets is Donald Lennard and KPERS works with LP Capital Advisors on private equity.

Meanwhile, Ares recently launched its fourth corporate opportunities fund and is targeting $4 billion, according to presentation materials made available by the New Mexico State Investment Council.

The fund will employ the same strategy as its predecessors, targeting private equity investments in the form of leveraged control buyouts or growth equity transactions in financially distressed companies, according to New Mexico documents.

Although the fund does not have a sector focus, Ares typically invests in North American companies in the aerospace, defense, building products, business services, consumer products, energy, healthcare and retail industries.

Ares’ third corporate opportunities fund, a 2008 vintage vehicle that raised $3.5 billion, was generating a net internal rate of return of 28 percent and an investment multiple of 1.5x as of December, according to state documents. Both Fund II and Fund III are classified as top quartile by New Mexico's advisor, LP Capital Advisors, and Ares has generated an overall net pooled IRR of 16.3% and a net multiple of 1.4x across its prior funds as of 31 October, according to New Mexico state documents.