Michigan nets $830 mln of distributions from PE in 2016

State of Michigan Retirement System’s private equity portfolio netted roughly $830 million in distributions last year, delivering an 8.7 percent cash yield.

Although distributions will likely remain “healthy,” Michigan expects the pacing of distributions from its PE portfolio to slow in the near term, a financial summary the pension system released shows. As investment staff previously indicated in December, Michigan’s $62.2 billion system will continue to invest opportunistically in strategies like co-investments and direct secondaries.

“Private equity firms are paying rich multiples for growth companies and unlevered cash flows,” staff wrote in its report. “The private equity division will remain opportunistic and continue to focus on co-investments, direct secondaries, commingled funds and other market driven opportunities.”

The Michigan system allocated $195 million across three funds in Q4, including $50 million to a co-investment vehicle managed by Blackstone Group’s credit affiliate, GSO Capital Partners.

The retirement system also committed $100 million to Veritas Capital Fund VI, which raised $3.55 billion for mid-market buyout investments, and $45 million to Warburg Pincus’s $2 billion China-focused fund. Michigan is an existing investor in funds managed by all three firms.

Michigan had a 15.4 percent allocation to the asset class as of Dec. 31, the report says. The system’s $9.5 billion PE portfolio has delivered a 10-year annualized return of 11.4 percent, surpassing the 10.9 percent return tallied by its benchmark and the 8.7 percent median return generated by its peer group.

Action Item: More about Michigan’s retirement system: www.michigan.gov/ors/

Ford Motor 1909 Model T’s sit outside Ford world headquarters during a 100th anniversary celebration of the “Tin Lizzie” in Dearborn, Michigan, on Sept. 5, 2008. Photo courtesy Reuters/Rebecca Cook