Arkansas teachers’ pension moves to increase exposure to emerging managers

  • New mandate allows advisor Franklin Park to make primary commitments
  • Commitments to emerging managers will deepen co-investment pipeline
  • Pension also commits up to $60 mln combined to EnCap and Lone Star funds

The changes to Arkansas Teacher’s co-investment program will allow its advisor, Franklin Park, to make commitments up to $10 million to first- or second-generation funds managed by emerging managers, Hopkins said. The $14.3 billion retirement system allocated an additional $25 million to the program at its April 6 meeting.

“We’re making fund investments with the expectation that we’ll enhance our co-investment opportunities, and to get a strategic position in what we believe will be up-and-coming managers of the future,” Hopkins said.

The new strategy should improve Arkansas Teacher’s pipeline of co-investments with smaller managers, Hopkins said. Managers raising their first or second fund typically require more money from co-investors.

“They often have less money raised, so they might need money for side-by-side investment,” Hopkins said.

Arkansas Teacher Retirement System has allocated $70 million to private equity co-investments annually since 2012 and has completed 10 deals, according to retirement system documents. Under Franklin Park’s new mandate, the pacing and distribution of commitments across primary fund and traditional co-investments would depend on Arkansas Teacher’s pipeline. In a typical year, Franklin Park would allocate $15 million into co-investments and $10 million into “next generation” funds, Hopkins said.

In addition to making changes to its co-investment program, Arkansas Teacher Retirement System allocated up to $30 million to EnCap Energy Capital Fund X at its April 6 meeting, Hopkins said. EnCap Investments is targeting $5 billion for its latest energy fund.

The retirement system also committed up to $30 million to Lone Star Real Estate Fund IV for investments in European, North American and Japanese distressed real estate.

The Arkansas Teacher Retirement System had a 9 percent allocation to private equity as of March 31, 2014 and targets 10 percent for the asset class.