Maine poised with $200m for co-investment

The $11bn retirement system can spend the co-investment capital with its existing private equity and infrastructure managers, without waiting for approval from the board.

The Maine Public Employees Retirement System has $200 million for private equity and infrastructure co-investments that investment staff can spend without getting authorisation from the pension fund governing board. 

The Board of Trustees approved the co-investment programme earlier this year, according to minutes from the February meeting.

MainePERS investment staff is authorised to spend up to $25 million per deal, and up to $100 million with any one general partner. The system will co-invest only with GPs with which it has already made a fund commitment, according to Andrew Sawyer, chief investment officer of the retirement system. 

There's some level of comfort [that] we're working with people we know, and we're comfortable with their strategy and approach.

Andrew Sawyer

MainePERS will work with its private equity and infrastructure consultant Cliffwater on assessing the opportunities. The allocation is part of the system’s overall private markets allocation, Sawyer said. MainePERS targets 10 percent each to infrastructure, private equity and real estate, as well as 5 percent to an asset class called hard assets, for a total 35 percent allocation target to alternative investments.

“If we’re investing in a fund and the fund is putting $150 million into a company and we’re investing $10 million alongside them, the comfort level is higher if it’s a company that’s been vetted by the GP that we’ve already decided to hire,” Sawyer said. “So there’s some level of comfort [that] we’re working with people we know, and we’re comfortable with their strategy and approach.”

The system has made one private equity co-investment, committing about $8.5 million in an opportunity with EnCap Investments in 2011. Maine also committed $30 million to EnCap Energy Capital Fund VIII the same year. 

Maine has approved the $200 million pool to allow investment staff to move quickly when opportunities arise, with the hopes that co-investments will help fuel returns and drive performance, Sawyer said. 

“It’s to enhance the total return of our total fund,” Sawyer said. Return expectations for private equity co-investments fall into a range in the mid- to- high teens, slightly higher than traditional fund commitments because of the lack of, or lower, fees on direct investments, he said. On infrastructure investments, the return expectation is in the range of low-to-mid teens, he said. 

There is some concern about the enhanced risk that comes with taking direct exposure into investments, Sawyer said, but risk is a natural part of the investment programme. 

“Everything we do has risk,” he said. “There’s different risks associated with co-investments – there’s less risk that we lose money paying fees and more risk because of direct ownership risk in investment. [The returns will come] through our careful review and business negotiations and legal review.”