Illinois Teachers’ commits to SK Capital and Inflexion

Teachers’ Retirement System of the State of Illinois disclosed commitments of $75 million to SK Capital Partners and $50 million to Inflexion Private Equity Partners at its Aug. 17 board meeting.

Both are new relationships for the $51.7 billion pension fund. With both commitments, it’s not clear if the pension committed to the core funds or smaller pools the firms marketed at the same time.

SK Capital, which invests in specialty materials, chemical and pharmaceutical companies, is targeting $1.4 billion for its fifth fund, though it could raise as much as $2 billion, Buyouts reported.

SK Capital is also raising an overage pool alongside Fund V to provide additional capital for larger acquisitions. There is no target listed for the overage pool, according to its SEC filing.

New York State Teachers’ Retirement System committed $100 million to the two SK Capital vehicles in April this year.

Inflexion’s fifth flagship fund that invests in lower middle market companies in the U.K. closed at 1.25 billion pounds ($1.6 billion) this May. Its second partnership capital fund, a non-control pool for the U.K. lower middle market, closed on 1 billion pounds in May.

New York Teachers’ committed $92.5 million to the two Inflexion funds in April.

Diversification

The $51.7 billion pension fund has committed $755 million to private equity to date in 2018, Dave Urbanek, director of communications for the pension fund, told Buyouts.

Illinois Teachers’s $6.3 billion private equity portfolio includes buyouts/corporate finance, venture capital, growth equity and distressed debt.

The pension system has been steadily increasing its private equity portfolio, aiming for higher geographic diversification, focus on core relationships and more investment opportunities in small buyouts and venture capital, according to its annual report.

The U.S. accounted for 73 percent of Illinois Teachers’s private equity investments followed by 13 percent in Asia-Pacific, 12 percent in Europe and 2 percent in Latin America, documents said.

Buyouts accounted for 81 percent of the pension system’s private equity portfolio, venture capital was 10 percent and special situations was 9 percent as on June 30, 2017, documents said.

The pension system’s private equity exposure was highest in IT, followed by consumer discretionary, energy, healthcare, financials and industrials sectors as on June 30, 2017, documents said.

Earlier in the year, the pension system committed $50 million to Harvest Partners and 100 million euros to EQT.

Some large private equity relationships for Illinois Teachers’ include Apollo Global Management, Blackstone Group, Carlyle Group, Leonard Green & Partners, MBK Partners, Veritas Capital, Vista Equity Partners and Warburg Pincus.

Despite strong returns, the pension system’s PE portfolio has consistently underperformed against its benchmarks. It returned 8.6 percent over 3 years, 12.8 percent over 5 years, and 8.6 percent over 10 years as on June 30, 2017.

The private equity benchmarks for the pension system are 12.4 percent over 3 years, 18 percent over 5 years and 10.5 percent over 10 years.

Illinois Teachers’ private equity allocation was 13.2 percent against a target allocation of 14 percent as of June 2017.

The pension fund has not reported its final investment return for private equity for 2018, Urbanek said.

Action Item: Read more on Illinois Teachers’s investments here https://bit.ly/2L9HyAL