- 10 months into FY 2016, private portfolio’s cash flow $113 mln in the red
- Distributions and public market volatility impacts PE commitment pacing
- Louisiana Teachers’ commits $1.1 bln in FY 2016
Teachers’ Retirement System of Louisianais about to enter negative territory.
The $16.6 billion pension spent $113 million more than its managers returned through the first 10 months of its current fiscal year. Alternative-asset and real estate fund managers called $853 million from Louisiana Teachers’ through April 30 and distributed just $740 million from realized investments over the same period. Its fiscal year concludes June 30.
With two months left in FY 2016, Louisiana Teachers’ private-market portfolio is poised to deliver negative cash flows for the first sustained period since first-quarter 2012, according to documents obtained through public-records requests. The portfolio includes the pension’s investments in private equity, private debt and real estate assets.
Like many public pensions, Louisiana Teachers’ enjoyed several years in which its private-market managers delivered more cash than they drew down for new investments. Total distributions from North American funds outpaced capital calls by $184 billion in aggregate since 2011, according to Preqin data published in May.
Strong inflows from distributions help firms raise new funds. Limited partners are more likely to commit to new vehicles when general partners are returning capital.
“Since distributions started exceeding capital calls, the fundraising process has become quicker and more successful,” according to the Preqin report.
“On average, funds closed in 2013 took 20 months to raise 97% of their target capital, while funds closed in 2015 were in market for 18.5 months and achieved 106% of their target.”
Once distributions begin to falter, the inverse becomes true. Louisiana Teachers’ originally set out to commit $1.5 billion to $1.7 billion to private assets in FY 2016. The pension later reduced its pace by roughly a third after public-market volatility threatened firms’ ability to exit their holdings in early 2016.
Louisiana Teachers’ FY 2016 commitments totaled $1.1 billion as of April 30. The board will consider its FY 2017 commitment pace in August.
Other pensions have also started to plan for weakening distributions. Los Angeles County Employees Retirement Association expects GPs to draw down $1.8 billion this year. It projects distributions to total $1.3 billion. LACERA plans to commit $1.5 billion to private equity in 2016, a 25 percent decline from the pace it set last year.
Teachers’ Retirement System of Louisiana valued its private-market portfolio at $4.6 billion as of April 30, according to its website. Private equity represented 48 percent of the portfolio’s market value. Real estate counted for 32 percent and private-market debt 20 percent.
Action Item: Louisiana Teachers’: http://www.trsl.org/main/home