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Michigan tilts toward mid-market buyout funds

The US pension has also acquired stakes in mid-market debt funds on the secondaries market, documents from its latest investment committee meeting show.

State of Michigan Retirement Systems has “slightly tilted” toward mid-market buyout funds in an effort to diversify its exposure to mega funds, according to documents from its latest quarterly investment meeting.

The $64 billion pension fund made commitments of at least $135 million to two mid-market vehicles in the fourth quarter of last year, as well as a $10 million secondaries purchase of a stake in a 2011-vintage mid-market direct lending fund managed by Czech Asset Management, documents from SMRS’s 8 June investment advisory committee meeting show.

The Czech-managed fund, SJC Onshore Direct Lending Fund, is a 2010-vintage $1.03 billion vehicle, according to PEI data. A spokesman for Old Greenwich, Connecticut-headquartered Czech confirmed the deal.

SMRS is also in the planning stages of consolidating its portfolio to gain scale and improve performance, according to the documents. Co-investments will play an important part in “averaging down costs and targeting specific investments with attractive risk/return characteristics”, the documents note.

Buyout funds accounted for SMRS’s largest private equity exposure at 45 percent as of the end of the first quarter, little changed from the previous quarter.

In addition to the Czech secondaries purchase, SMRS also acquired $6.2 million worth of interests in three Crescent Capital-managed debt funds in the first quarter of the year, the documents show. The Crescent Capital-managed funds were the 2001-vintage $1.2 billion TCW/Crescent Mezzanine Partners III, the 2006-vintage $1.6 billion TCW/Crescent Mezzanine Partners IV and the 2008-vintage $2.9 billion TCW/Crescent Mezzanine Partners V.

Public pensions were the least active buyers of secondaries stakes last year, accounting for just over 1 percent of buyers, according to a 2016 volume report by Setter Capital. Their purchases are sporadic – in March it emerged that South Dakota Retirement System increased its exposure to Blackstone’s 2015-vintage energy fund by acquiring a $35 million original commitment to the vehicle, while New Mexico Educational Retirement Board said in November it was interested in acquiring secondaries stakes in Lone Star Funds’ 10th flagship fund.

Crescent Capital declined to comment.