NYSTRS makes room for private debt

The pension plan, which created a specific bucket for credit investments, previously had them in its private equity allocation.

The New York State Teachers Retirement System has approved a new private debt allocation and reduced its real estate debt bucket, minutes from its August meeting showed.

The NYSTRS board established a 1 percent target and a 5 percent maximum for private credit,  according to the document. The board also voted to reduce its real estate debt target from 8 percent to 7 percent and the allocation's range from 4-12 percent to 3-11 percent. “All other asset class targets and ranges remain unchanged,” the document read.

“We believe private debt complements our existing real estate debt portfolio by providing further diversification of the System's private credit allocation,” a NYSTRS spokesman said in an email. “With this move we believe there is the potential for higher yields and overall returns.”

Previously, the Empire State pension plan had placed its non-real estate credit investments in its private equity bucket, which held $19.5 billion in commitments as of the end of the second quarter, the 2 August meeting agenda showed. Credit investments accounted for 6 percent, or roughly $1.17 billion, of that asset allocation as of 30 June.

Last month, the retirement plan allocated up to $100 million to ADV Opportunities Fund II, a special situations vehicle that will make both debt and equity investments in Asia. In May, NYSTRS committed $100 million to Orion Energy Credit Fund II, a direct lending vehicle to North American mid-market energy companies.

The credit portfolio showed a net internal rate of return of 22 percent since inception through 31 March, according to the agenda, though a footnote indicated the results were “skewed by a very successful” 1988-vintage fund. Without that vehicle, the credit investment's net IRR is 7.95 percent. The leveraged buyout investments showed a 14.9 percent return over the same time period.

The pension plan's real estate debt portfolio was slightly underweight by the end of the first quarter this year, comprising 4.9 percent of its total portfolio, or $7.01 billion. That allocation showed a return of 1.7 percent in the first quarter, a 2.3 percent return for the year ending 31 March, a 4.4 percent return for the three-year period ending that date and 5 percent return over a 10-year period.

Also during its most recent board meeting, the NYSTRS renewed an agreement with Prima Capital Advisors to manage a separately management account of first lien mortgage loans, mezzanine loans, commercial mortgage backed securities and investment grade REIT bonds, for one year beginning 1 November, the minutes showed.