Massachusetts PRIM releases 5-year carry data

PRIM, which has been building on its co-investment programme to cut fees and carry, has steadily reduced carried interest expenses in the past few years.

The Massachusetts Pension Reserves Investment Management Board (PRIM) cut its annual carried interest allocations to private equity fund managers by 32 percent from 2013 to 2015.

For the first time, PRIM chief investment officer Michael Trotsky issued a memorandum to its board and committee members on Tuesday outlining the $60.6 billion pension fund’s carried interest data. According to the memo, MassPRIM paid out a total of $1.03 billion in carried interest, which is typically 20 percent of realised investments given to fund managers, between 2011 and 2015.

During that period, the Boston-based pension fund had about 120 external private equity fund managers.

Profit-sharing in 2011 was $152 million and peaked in 2013 at $289 million. However, in 2014 the number fell 17 percent to $241 million, and another 18 percent to $197 million in 2015. During those five years, the pension plan’s private equity portfolio net asset value steadily rose 24 percent from $5.4 billion to $6.8 billion.

US pension plans have been actively seeking to minimise costs associated with investing in private equity. PRIM began a co-investment programme in early 2015, which offers zero management fees and zero carried interest.

Trotsky said in the memo that “we continue to work to reduce management fees paid to, and carried interest allocations retained by, our private equity managers” even if PRIM has been pleased overall with its net-of-fees private equity performance.

PRIM, which allocates 11 percent of its total fund to private equity, has indeed seen stellar private equity returns, having realised an annualised 16 percent net return for the five-year period between 2011 and 2015, according to the memo.

For the three-, five- and 10-year periods ending 30 June, private equity was the best-performing asset class within MassPRIM’s investment portfolio, beating real estate, core fixed income, timber, global equity, edge funds and value-added fixed income, according to the memo.

In the American Investment Council’s 2015 ranking of US public pension funds’ private equity portfolio performance, PRIM ranked first with a 17.93 percent 10-year return. It ranked second in the 2014 list, and fourth in the 2016 list.

According to PEI data, PRIM has committed capital to private equity firms such as Thoma Bravo, Charterhouse Capital Partners, Medicxi Ventures, Index Ventures, Anchorage Capital Group, Kainos Capital, Union Square Ventures and Sofinnova Ventures in 2016.

The memo also indicated that PRIM’s management fees, which are typically 2 percent of total commitment or assets under management, remained relatively flat, just under $100 million a year. For all five years, the pension fund paid a total of $483 million in management fees to its fund managers.

Carry and management fee data released by PRIM follows similar reports from other prominent US public pension funds, such as the California Public Employees’ Retirement System, which kicked off the trend a year ago, and the California State Teachers’ Retirement System.