Pennsylvania commits $62m in 're-ups'

The $24bn pension has made four follow-on investments to firms including Oaktree Capital Management and JMI Equity partners.

The Pennsylvania State Employees’ Retirement System has made four follow-on investments to private equity, totaling $62 million, continuing a strategy it implemented this year to only put money to work with existing managers. 

The $24 billion pension committed up to $25 million to Oaktree Capital Management’s eighth opportunity fund in the form of two $12.5 million investments. Oaktree’s eighth fund is split into a Fund A and Fund B structure, similar to what the firm did with its seventh fund. Fund A will likely be capped at $4 billion and invested first. Fund B would serve as an “overflow” reservoir of capital, would not be capped, and would not incur management fees unless and until capital is drawn, according to documents from the Oregon Investment Council, which committed to the fund earlier this year.

PA SERS also committed $20 million to Avenue Special Situations Fund VI and $10 million to JMI Equity Partners VII, two firms the pension has committed to in the past. The pension also contributed $7 million to Asia Alternatives Capital Partners Korea Buyout Investors as a co-investment in a transaction for Hahn & Company Korea.

Historically one of the most active private equity investors, Pennsylvania pulled back from private equity last year as it battled severe over-weighting to the asset class. PA SERS last year lowered its target to alternatives to 12 percent from 14 percent. Its current allocation stands at about 26 percent.
But this year, the pension has made several follow-on commitments to existing managers in the portfolio, including JH Whitney and Advent International. The pension board was looking 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”, said PA SERS Chairman Nicholas Maiale earlier this year.

For the 12 months ending 30 June, the fund had a return of 12.6 percent, most of which was earned in the last six months of 2009. A 2.9 percent gain in Q1 2010 was offset by a loss of 2.3 percent in Q2, according to the pension.

Chief investment officer John Winchester noted in a statement that the fund ended the first half of 2010 in the black, but only by sixth-tenths of 1 percent. “There have been further gains thus far in the third quarter, but it will require continued improvement in the financial markets over the remainder of the year if the fund is to achieve its 8 percent assumed rate of return for the calendar year.”

During 2009, the pension also paid out $133.7 million in management fees to alternative investment managers, $7.4 million in investment-related fees and $1.9 million to Cambridge Associates for consultancy work.