MassPRIM’s private equity portfolio roars back in Q3

Staff had predicted a major comeback for the $80bn pension's PE programme at previous meetings, saying relative underperformance earlier this year was due to a 'benchmarking anomaly'.

Massachusetts Pension Reserves Investment Management Board saw its private equity portfolio bounce back in the third quarter, generating almost four times the return from earlier this year, staff told its investment committee Tuesday.

“What a difference a quarter can make,” said executive director and chief investment officer Michael Trotsky. “These wild times can have remarkable swings.”

The $80 billion pension’s private equity returns were 16.8 percent as of 30 September, gross of fees. They were 4.4 percent as of 30 June. The overall fund returned 7.3 percent over one year.

Trotsky and PE director Michael Bailey told the board in September they expected a strong rebound, as sister publication Buyouts reported.

Earlier this year, Trotsky told the fund’s investment committee and board of trustees that a “bench-marking anomaly” caused the private equity programme to contribute significantly to the fund’s underperformance in the wake of the coronavirus crisis.

The fund’s benchmark is tied to the public markets, which dropped precipitously in the first quarter of 2020 but then rebounded almost as abruptly over the second quarter. This played havoc with private equity returns, which lag by a quarter. “It’s an apples and oranges comparison, if you will,” Trotsky told the committee in July.

Los Angeles City Employees’ Retirement System‘s staff recently reported similar issues, as Buyouts reported.

Trotsky said that anomaly “reversed itself completely” over the third quarter.

MassPRIM is in the process of re-evaluating its benchmarking process. At Tuesday’s meeting, the investment committee approved a contract with Verus to provide “benchmarking advisory services” for $115,000 a year.

Bailey said private equity contributed 25 percent of the fund’s total one-year returns, and highlighted that its 10-year returns were 18.3 percent, beating the benchmark.

So far, the fund committed more than $1.76 billion this year, which Bailey said was “right on target”. According to meeting documents, the fund wants to commit up to $2.3 billion this year. He added that several co-investments were also in the works and would be presented at future meetings.

This article first appeared in sister publication Buyouts