The Massachusetts Pension Reserve Investment Board has set aside $1.4 billion for private equity commitments in 2014, up from $1 billion the pension carved out for the asset class in 2013, according to documents from the pension’s Tuesday board meeting.
MassPRIM came close to its $1 billion goal last year, committing $810 million to 14 alternative investment funds, not including distressed debt vehicles. The pension plans to commit to more small and mid-market funds in 2014 and to add one or two new firms to its portfolio. MassPRIM cited the difficulty in deploying capital from large-cap funds and higher levels of risk as reasons to favour market conditions for smaller vehicles. Small and mid-market funds also produced the highest net internal rate of return for the portfolio, at 13.6 percent, as of 30 June 2013.
The increased private equity investment pace will help the pension reach its target of committing $1.8 billion to the asset class in 2018. MassPRIM also increased its individual fund commitment cap to $300 million.
The pension will also implement its debut co-investment programme in 2014, citing the increased exposure, reduced fees, and strengthened portfolio insight that come with co-investing. MassPRIM also cited the fact that 43 percent of large institutional private equity limited partners already co-invest alongside their fund managers. Of the $1.4 billion set aside for private equity, up to $140 million will be co-investments, the pension said. MassPRIM won’t be able to invest more than $30 million in any single co-investment fund and all funds must be in North America or Western Europe.
Private equity commitments in 2013 included $192 million to CVC Capital partners VI and $30 million to growth equity fund WestView Capital Partners III. The pension committed about $700 million to 11 private equity funds in 2012, not including distressed debt investments, according to the documents.
In order to fulfill its investment plans for the year, MassPRIM expects to hire a fourth investment officer. The Boston-based pension has $57.9 billion of assets under management and has been investing in private equity since 1986.