Investor Base: Eight is enough

The State of Wisconsin Investment Board kicked off the year with a $390 million private equity allocation to eight funds. That news would be big enough in itself, were it not for the new private debt investment plan brought forward at the same meeting. That plan will see the pension revamp how it thinks about private debt and how to create value in the portfolio.

On the private equity side allocations included a handful of blue chip names such as American Securities, Bridgepoint, EnCap and two TPG mandates. $100 million went to TPG Growth III and TPG Partners VII. TPG Growth III is near its $3 billion first close and TPG Partners VII, the flagship buyouts vehicle, closed on $6.5 billion in March.

The other exposures including Europe through Bridgepoint’s Europe Fund V, venture and energy. Interestingly, $35 million will also go to Fortissimo Capital Fund IV. That fund is currently in market with an unknown target for venture capital investments in Israel.

On the debt side, Wisconsin’s approach could be a roadmap for other pensions looking at how to find yield while mitigating downside risk. Wisconsin first started its dedicated debt strategy in 1983, and has invested $2 billion with a strong focus on investments in the surrounding area including Minnesota, Iowa, Illinois and Michigan.

Going forward the pension wants to expand its investment area to include Ohio, Indiana and Pennsylvania and remove its percentage restrictions on the portfolio. Investment staff were quick to point out in its presentation, however, that even though an expansion of the strategy is planned, that doesn’t mean that the overall nuts and bolts of the investment process will change. Underwriting, due diligence, and monitoring will all stay the same. The target allocation for the expansion plan isn’t known.

The platform provides senior financing to mid-market companies with revenues ranging from $30 million to $750 million and subordinated debt to lower mid-market companies with revenues of $15 million to $150 million, according to SWIB’s website.

The expansion is notable given that it still maintains a regional focus while potentially adding exposures to energy debt plays in Pennsylvania – a hot spot for many value investors in recent months. The pension says it wants to be able to take advantage of more opportunities, remain relevant in the market, diversify and hopefully improve the returns picture.