Maryland State increases PE target to 11%

The Maryland State Retirement and Pension System board has approved a reorganization of its asset allocations and has increased it private equity target from 10%.

The Maryland State Retirement and Pension System 's board approved the investment committee's recommendation on the reorganization of its asset allocations and the increase of its private equity target from 10 percent to 11 percent, according to meeting documents from the pension plan. 

“The increase in private equity provides some additional return potential in strongly positive markets,” according to the May meeting minutes from the investment committee. “Adding to private equity presents some near-term concerns because of the large amount of money that has been committed to the sector and the elevated equity valuations. However, it will take some time to make additional investments in private equity.”

The pension fund's reorganization seeks to reduce moderate return and risk asset classes in the form of international developed market equity and absolute return, and redeploy the assets in a combination of private equity and Treasury Inflation-Protected Securities (TIPS), according to the meeting minutes from the investment committee. 

As of 31 March, the Maryland State had 9.4 percent in private equity assets with more than $4 billion in uncalled commitments. To achieve and maintain the existing target of 10 percent, the pension fund needs to commit $1.8 billion per year to new partnerships in each of the next few years, adding a 1 percent target and attempting to achieve the 11 percent in three years, will roughly require an additional $250 million per year in commitments. 

The asset classes of the pension fund's investments were reorganized from eight specific classes to five broad categories, based on common risk factor exposures. 

The current asset class structure of public equity, fixed income, credit, real return, absolute return, private equity, real estate and cash, will be reorganized into growth/equity, rate sensitive, credit, real assets and absolute return. 

The private equity asset class, which used to stand on its own, will now fall under the growth/equity category, which focuses on US, international developed and emerging market equity and private equity. 

The real return asset class, which included TIPS, global inflation linked bonds, commodities, energy-related investments, infrastructure, timber and other natural resources, was renamed real assets and now includes real estate, commodities, natural resources and infrastructure. Real estate used to be an asset class on its own.

In March, the pension plan committed $200 million to Vista Equity Partners Fund VI, $100 million to Green Equity Investors VII and $70 million to Advent International GPE VIII. It has a strong pipeline for the remaining of the years with 19 private equity funds totaling about $1.6 billion in commitments. 

Maryland State Retirement and Pension System has $44.7 billion assets under management as of May, according to PEI Research and Analytics.