Minnesota Investment Board Pledges $625M To Four Funds

The Minnesota State Board of Investment, which manages $57.5 billion for several state pension funds, has been ramping up its private equity program during the last several months, pledging $625 million to four funds at its most recent meeting.

The board, which invests on behalf of pensions including the Minnesota Teachers Retirement Fund, the Minnesota Public Employees Retirement Fund and the Minnesota State Employees Retirement Fund, has an overall allocation to alternatives of 14.6 percent in its primary pool, and a long-term policy target of 20 percent, according to the latest annual report from June 2011. Private equity makes up 59 percent, or $4.2 billion, of the main fund’s alternative portfolio.

As for its newest investments, the biggest one was $200 million to Green Equity Investors VI LP, one of the more popular funds that is currently in the market. The fund has a target of $5 billion. Leonard Green & Partners, the Los Angeles-based consumer retail specialist, is known for investing in such high-profile retailers as Neiman Marcus, J. Crew, Whole Foods, Rite-Aid, Sports Authority, Petco and BJ’s Wholesale.

The fund has been especially popular among public pension funds over the last few months, gaining commitments from such major U.S. pensions as the Washington State Investment Board, the State of Wisconsin Investment Board, the Illinois Teachers’ Retirement System, the Ohio School Employees’ Retirement System, the Louisiana Teachers’ Retirement System and the New Mexico State Investment Council, among others.

Leonard Green’s previous funds have had strong track records of returns. Its most recent, Fund V, generated an IRR of 15.4 percent and a 1.3x return multiple, according to Sept. 2011 return data from Washington State. The new fund is expected to close in the first quarter.

Minnesota’s second-biggest commitment was $175 million to Court Square Capital Partners III LP, a fund with a $3 billion target run by the firm of the same name. New York-based Court Square Capital Partners invests in a variety of industries, including health care, transportation, media and chemicals.

The California Public Employees Retirement System was also an investor in Court Square Capital’s previous fund, the Court Square Capital Partners II LP.  That fund, which has a 2007 vintage, has returned a 10.4 percent IRR and a 1.3x return multiple, according to CalPERS return data from June, 2011. Minnesota previously invested $175 million with Fund II.

The board also pledged $150 million to Wayzata Opportunity Fund III LP, a private equity fund with a $2.5 billion target. Wayzata Investment Partners, which has $7 billion under management, is fittingly based in Wayzata, Minn., a suburb west of Minneapolis.

Like the Minnesota Board of Investments, CalPERS also invested in Wayzata’s previous fund, Wayzata Opportunities Fund II LP.  According to CalPERS data from June 2011, the vintage 2007 fund has returned a 16 percent IRR and a 1.7x return multiple.

Finally, the Minnesota Board of Investments made a big pledge to the secondary market, committing $100 million to Adams Street Global Secondary Fund V LP. Adams Street Partners is seeking to raise $750 million for the fund.  Although Minnesota has invested with Chicago-based Adams Street Partners before, it is their first investment into an Adams Street secondary fund.