Tennessee commits €200m to BC the day after Brexit vote

Despite the UK’s vote to leave the EU, the public pension plan decided to approve the commitment to bolster its exposure to European private equity.

It was a difficult decision, but on 24 June, the day after the UK had voted to leave the European Union, Tennessee Consolidated Retirement System committed €200 million to BC European Capital X.

“There was much discussion about the fund,” said a spokeswoman for TCRS. “Treasurer [David] Lillard, who also serves as chair of the TCRS board of trustees, did say 'we will have a conversation with managers to navigate what we're doing, given the situation in Europe'.”

She added that TCRS is currently materially underweight to Europe in its private equity portfolio. As of 31 December 2015, Europe represented less than 9 percent of its private equity exposure, while the pension plan estimates the region represents about 30 percent of the global private equity market, she told Private Equity International .

There were other factors aside from geographic under-exposure to Europe, in the decision to commit to BC European Capital X, which is seeking to raise €7 billion and which represents a new relationship for TRCS. 

The fund will invest TCRS's €200 million over the next five to six years, which is a long-term oriented investment, the spokeswoman said, adding that the riskier investment environment that may result from the UK exiting the EU could bring more attractive pricing and hopefully boost returns.

“Private equity pricing has been high and, as a result, expected returns have been below long-term averages,” she said. “All else equal, if BC X starts deploying our investment at lower prices in a higher-risk environment, that is actually quite positive for this fund's prospects.”

BC European Capital X launched at the beginning of the year. Other recent commitments include a $75 million investment from Teachers' Retirement System of Louisiana at the beginning of June.

The fund focuses on large-cap buyouts predominantly in the European market. Its predecessor, BC European Capital IX, closed on its €6.5 billion hard-cap after being oversubscribed.

A spokesman for BC Partners declined to comment on fundraising. 

TRCS has $42.5 billion in assets under management, with 3.2 percent of its portfolio invested in private equity as of 31 March, including about 40 percent of that exposure in buyouts, nearly 28 percent in venture capital, 16 percent in special situations and 10 percent in secondaries.

It provides retirement benefits for state employees, education employees and teachers.