MassPRIM in no rush to commit capital after slow first half

Massachusetts Pension Reserves Investment Management Board staff is bearish on making new commitments to private equity in the current market, according to spokesman Eric Convey.

At MassPRIM’s Aug. 2 investment meeting, PE chief Michael Bailey indicated staff is in no rush to commit capital to PE or private debt, Convey said. Similarly, Executive Director and Chief Investment Officer Michael Trotsky was pleased with the staff’s performance and patience in the current environment.

MassPRIM was more than a full percentage point above its 10 percent target allocation to the asset class as of June 30. Being above target has likely relieved any lingering pressure to commit capital to new funds, Convey said.

Through the first half of 2016, MassPRIM allocated less than half the $1.4 billion it earmarked for new commitments at the start of the year. (See MassPRIM H1 commitments.) The retirement system will have to commit around $885 million to reach its pacing target by year-end.

“It’s absolutely plausible we would not commit the full $1.4 billion, and that’s something we’re totally comfortable with,” Convey told Buyouts.

Staff has been slightly more bullish on the opportunities it’s been presented in private debt. Commitments to Anchorage Capital Group, Centerbridge Partners and Blackstone Group-affiliate GSO Capital ate up more than 70 percent of the $800 million MassPRIM expected to commit to the strategy this year.

Returns in choppy markets

MassPRIM’s bearishness emerged as PE firms struggle to deploy capital in an expensive deal environment marked by choppy credit markets and stiff competition from corporate buyers. According to Pitchbook, middle-market buyout activity in the U.S. has declined “in step with the broader PE marketplace.”

Exits have also dwindled. U.S. private equity firms exited 379 companies with a combined value of $36 billion in the first half, Pitchbook says. The industry appears unlikely to match the $103 billion it generated from from exits last year.

Unlike peer institutions like Los Angeles County Employees Retirement Association and Teachers’ Retirement System of Louisiana, MassPRIM’s PE program continues to generate positive cash flows despite the dropoff in private- equity-related exits.

Through the first half, general partners distributed $791.4 million to the retirement system while calling just $465.6 million. The PE portfolio netted $325.8 million in positive cash flows in the period.

Those returns likely helped MassPRIM outperform expectations in the 2015-2016 fiscal year. The system’s $60.6 billion investment portfolio returned 2.3 percent, exceeding the 1.46 generated by its benchmark.

MassPRIM’s private equity portfolio returned 12.2 percent last year, Convey said. The $6.5 billion portfolio has netted a 13.15 percent internal rate of return since inception.

Action Item: MassPRIM’s website: www.mapension.com

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