Tennessee takes on separately managed accounts

Beachpoint Capital Management and Brigade Capital Management will manage $500m each in separately managed accounts dedicated to strategic lending, according to the retirement system.

The Tennessee Consolidated Retirement System’s investment committee approved up to $1 billion for a pair of separately managed accounts dedicated to strategic lending, according to a statement.

Credit and high-yield specialist firms Beachpoint Capital Management and Brigade Capital Management will manage up to $500 million each for the $36.6 billion retirement system. The Tennessee General Assembly granted the retirement system the ability to invest in strategic lending last year, according to the statement.

A spokesperson for Tennessee Consolidated declined to give any information about fee and carry terms on the accounts. Beachpoint and Brigade could not be reached for comment at press time.

Tennessee’s investment committee also has approved $175 million in private equity commitments, according to the statement.

The separate accounts and private equity commitments are contingent on a successful review of legal documents.

Both of Tennessee’s private equity commitments went to firms that have offered LPs options on fee breaks with their latest vehicles. The retirement system approved up to $100 million for KPS Special Situations IV and up to $75 million for Bain Capital Fund XI.

LPs in Bain’s 11th flagship fund have had the option to choose between three ‘classes’ of terms. Class A will pay a 1.5 percent management fee and 20 percent carried interest with a 7 percent preferred return; Class B pays a 1 percent management fee, 30 percent carry with a 7 percent preferred return; and Class C offers a 0.5 percent management fee, 30 percent carry and no preferred return.

KPS is offering LPs two options for management fee and carry terms, according to New Jersey Division of Investment documents. The first option – like KPS III – calls for a 1.75 percent management fee with 25 percent carry. The second offers a 1 percent management fee with a 30 percent carry.

Tennessee is not disclosing the terms of its commitments to Bain and KPS.

Bain XI is targeting $6 billion with a $7.5 billion hard-cap. The fund will invest between $200 million and $500 million in equity per deal, but has the ability to invest up to $1 billion in larger transactions, according to Public School Employees’ Retirement System of Pennsylvania documents.

The vehicle will focus on investments in the consumer, retail, dining, technology, media, telecom, industrials, energy, business, financial services and healthcare sectors. Bain’s previous flagship fund, a $10.7 billion 2008 vintage, had netted a 1x multiple and 0 percent internal rate of return as of 30 September, according to PSERS documents.

KPS Special Situations Fund IV is targeting $3 billion for control investments in basic manufacturing, transportation and service businesses. The strategy typically includes corporate divestitures and carve-outs, operational turnarounds, financial restructurings, businesses operating in bankruptcies and companies in out-of-favour industries.

The firm’s previous fund had generated a 1.7x multiple and 21.7 percent net internal rate of return, according to New Jersey documents.

Tennessee has a 10 percent allocation to private equity and strategic lending, according to its investment policy.