PSERS cancels hundreds of millions in commitments

Cerberus, HgCapital, Apollo and Gold Hill are among the GPs to see agreed commitments evaporate as the Pennsylvania Public School Employees' Retirement System retrenches.

The $45.4 billion Pennsylvania Public School Employees' Retirement System (PSERS) has pulled back on hundreds of millions of dollars in planned private equity commitments as the pension struggles with its over-weighted alternatives allocation.

The pension is not funding the planned commitments “due to the fact that our allocation to this asset class has increased due to the denominator effect”, a PSERS spokeswoman said in an interview.

“We are not trying to get out of our existing commitments or contracts. These were deals which were never executed or finalised and we decided to not fund them at this time,” the spokeswoman said. “We did not have signed contracts on these deals … the decision has nothing to do with the quality of the funds and we would still consider them if they were still open when the situation changes.”

The pension has a long-range target allocation to private equity of 14 percent, and actual allocation of 24 percent.

PSERS is not looking for any new relationships with private equity managers “at this time”, the spokeswoman said.

Many public pensions are battling the denominator effect, in which the declining value of their public holdings causes their actual other asset classes like private equity to rise above targets. 

The New Jersey State Investment Council, which manages the state’s $63 billion pension, withdrew planned commitments to several funds in January as it battles an over-allocation to private equity. New Jersey withdrew a planned $50 million commitment to UK buyout firm Charterhouse Capital Partners, which is targeting €6 billion for its ninth fund. The investment council also decided against a $150 million commitment to Morgan Stanley Real Estate Fund VII Global, which is targeting $12 billion.

PSERS has withdrawn planned commitments to three private debt funds, including a planned $200 million commitment to Cerberus Institutional Partners International, a debt fund targeting $1.5 billion to $2 billion for non-US distressed investments.

The pension withdrew a $68.8 million pledge from Gold Hill Capital, a private debt fund targeting $225 million to make loans to venture-backed technology and life sciences firms. The fund would invest in companies backed by “top-tier” venture capital firms. 

Also, PSERS withdrew a €100 million planned commitment to Apollo European Principal Finance Fund, a private debt fund targeting €1.5 billion to €2 billion for investments in distressed loans in Europe.

PSERS withdrew a planned £120 million commitment to HgCapital 6, a £1.75 billion buyout fund that will invest in the pan-European mid-market, and $50 million from Cardinal Ventures Partners II, a $160 million fund that will make investments in early stage technology companies.