LP Radar: MassPRIM

What does it take to be number one among 380 of your peers? Investment professionals are likely to refer to due diligence, discipline, quality of teamwork and each individual, among many other factors.

Time and again, private equity experts lay out the skills and resources it takes to build a stellar investment portfolio and generate strong returns. But the Massachusetts Pension Reserves Investment Management Board (MassPRIM) would agree that it’s easier said than done to see tangible results and outperform hundreds of other private equity investors like it has.

A study of US public pensions by the Private Equity Growth Capital Council (PEGCC) found that the Massachusetts Pension Reserves Investment Trust Fund (PRIT), which is overseen by MassPRIM, ranked first out of more than 155 funds observed, with a 17.93 percent 10-year private equity return. The median return, according to PEGCC’s December report, was 12.1 percent.

There are about 380 US public pension funds that invest in private equity, according to PEI Research & Analytics, and MassPRIM has risen from second place to the top spot for its 10-year performance to 30 June 2014, according to PEGCC.

“The PRIM board, our investment committee and the investment team have worked with private equity firms to construct a portfolio that is mature and high-performing,” says

Michael Bailey, MassPRIM senior investment officer and director of private equity.

In a separate statement, MassPRIM said that its private equity team has a “disciplined investment process” and seeks out highly talented, experienced fund managers with its “creative, detail-oriented team”.

MassPRIM, founded in 1983 by the state legislature in Massachusetts, has a $60.7 billion investment portfolio. It has committed $14 billion in capital to 238 funds, according to PEI Research & Analytics, with a roster of fund managers including TA Associates, Thoma Bravo, Catalyst Investors, Insight Venture Partners and Advent International.

It allocates 11.1 percent of the PRIT fund to private equity, according to its performance report as of 30 November 2015, slightly above its 10 percent target. The report showed that its private equity portfolio outperformed other assets, such as real estate, hedge funds and fixed income, over all time periods ending 30 November 2015.

“Michael Bailey and our entire private equity team keep raising the bar for the rest of the field,” MassPRIM executive director and chief investment officer Michael Trotsky said. “The professionalism and experience of our staff, the PRIM board, our investment committee and our other committees is a tremendous asset to the commonwealth.”

At a time when the number of private equity fund managers in the market is growing, limited partners are likely to be using all the resources they can to find the ones who will deliver returns. This is increasingly important as the number of institutional investors accessing the asset class rises.

In its half-yearly private equity update, MassPRIM said it had planned to commit $713 million to the asset class by the end of 2015. It had committed about $1 billion to private equity leading up to the mid-year, to funds including Charterhouse Capital Partners X and Quantum Energy Partners VI. It had also committed capital to Lovell Minnick’s Fund IV, which closed on its $750 million target in November.

Antoine Drean, chairman of fund advisory Triago and chief executive and founder of online private equity marketplace Palico, calls MassPRIM a “clear example of the outsize investment success” driven by a carefully-chosen, well-diversified private equity portfolio.

“The pension fund’s private equity portfolio covers a particularly extensive range of sectors, strategies, vintages and fund sizes,” Drean says. “The substantial returns racked up are a great testament to the skill shown by the investment team and their advisor, Hamilton Lane, in identifying top performing managers in everything from buyout to venture capital, while limiting risk through diversity.”

He adds that MassPRIM has the necessary skills to allocate capital efficiently in an increasingly competitive private equity industry.

Relating to this, MassPRIM is currently in the process of searching for a private equity officer; it was reported that Peony Keve, a MassPRIM private equity investment officer, left the pension fund in November after a seven-year tenure. A high bar is set for Keve’s replacement.