PA SERS commits $25m to Oaktree energy fund

The pension, with $24bn in assets, has dropped its target allocation for alternatives from 14% to 12% as it looks to reduce its exposure to the asset class.

The Pennsylvania State Employees’ Retirement System is committing $25 million to Oaktree Power Opportunities Fund III, one of the few commitments it will make this year as it pulls back from private equity.

The commitment “reflects a desire by the [pension] to maintain, on a highly selective basis, existing core relationships with top-tier alternative investment managers who we believe have the greatest capability to create long-term value for the SERS fund”, according to Nicholas Maiale, chairman of the pension board.

Oaktree is targeting $800 million for its third energy-focused fund, which just began marketing.

PA SERS committed $25 million to the previous, OCM/GFI Power Opportunities Fund II, a $1 billion energy fund closed in 2005. The pension, with $24 billion in assets, has committed $450 million to 12 funds sponsored by Oaktree Capital Management since 1996.

The pension decided in December to lower its target allocation to alternative investments from 14 percent to 12 percent. PA SERS’ is severely over-allocated to the asset class with 23 percent of its fund stuck in alternatives.

PA SERS does not have a monetary target to spend on alternative investments this year, but “it will be limited”, a pension spokesperson said.

The pension made one private equity-related commitment in 2009, investing $250 million in the Sankaty Middle Market Opportunities Fund, which is targeting $750 million to invest in mid-market debt.

Private equity earned 7.2 percent in the third quarter for the pension, compared to a loss of -8.9 percent in real estate. “We were particularly pleased to see private equity performance begin to recover as quickly as it did,” chief investment officer John Winchester said at the time.

PA SERS has also dropped its target for real estate from 8 percent to 7 percent. Its actual allocation in real estate is 8.7 percent.