Hawaii pension approves slight increase to PE target

Employees’ Retirement System of Hawaii will bump up its private equity target to 19 percent.

While facing a challenging market, many institutional investors are still bullish on private equity. Hawaii is just one of the latest to increase its target to the sector, albeit only doing so in a slight amount.

Hawaii’s board approved the 19 percent target to private equity at its July 10 board meeting, an uptick from the previous 18.2 percent. Buyouts watched a broadcast of the meeting.

According to a presentation from adviser Meketa, the $21.9 billion Hawaii system allocated 65 percent of its total fund to growth assets and 35 percent to diversifying strategies. Private equity is under the growth asset bucket.

The system’s actual allocation to private equity was 18.5 percent as of the end of last year, according to a separate presentation from Hamilton Lane, Hawaii’s discretionary private equity consultant.

As of the end of 2022, Hawaii’s $4 billion private equity portfolio has a net IRR of 12.64 percent since its inception, Hamilton Lane said.

According to Hamilton Lane, mid-market buyout funds have been Hawaii’s best performing PE strategy since the program’s inception. Venture capital has been its worst performer and has detracted from the system’s overall performance, according to Hamilton Lane.

In 2022, large and mid-market buyout funds have provided the best returns for the system. Growth equity, mega-buyout and venture capital funds have been the worst performers and detracted value from the portfolio, Hamilton Lane said.

The system plans on allocating between $600 million and $700 million to private equity in 2023, according to Hamilton Lane. The system has made $300 million in commitments to date.

These include a $50 million commitment to Bertram Growth Capital V and $50 million to TA XV. The system has made four more commitments to unannounced managers, Hamilton Lane’s report said.

Cash flow from private equity was negative $34 million in the first quarter of 2023, Hamilton Lane said. The system received $75 million in contributions while making $109 million in distributions.

Contributions were down 41 percent from the first quarter of 2022 while distributions were off by 54 percent, according to Hamilton Lane.