Kansas Public Employees’ Retirement System plans on committing $150 million to $250 million to alternative assets in 2023.
Multiple retirement systems are overallocated to private equity due to the denominator effect, which boosts actual allocations to private assets that lag sinking public markets by several months.
Kansas was among the first pension systems to feel the brunt of the denominator effect.
The 2023 pacing plan continues the course set by the system in May as overallocation issues forced the board to reduce its commitment range from $200 million to $300 million.
The 2023 pacing plan was presented by Richard Pugmire, a partner at consultant Mercer, during the system’s investment committee meeting held on November 17. Buyouts watched a broadcast of the meeting.
The $26 billion system allocates 11 percent of its portfolio to private assets, above its 9 percent target. Private equity makes up the bulk of its alternative asset strategy.
Kansas also faces a complication caused by a statutory limit that prohibits the system from allocating more than 15 percent of its portfolio to alternative assets. The state legislature may consider eliminating this cap in 2023, according to committee members.
The system will target commitment sizes of $25 million to $50 million per manager, according to Pugmire.
Kansas works with 25 active managers. Pugmire said the system has the capacity to commit to new managers but should focus on “high quality” re-ups.
The investment staff is considering a commitment to a tech-focused growth manager in January. According to Pugmire, the same manager cut back on its relationship with Kansas in 2021 as the system was squeezed out in a fast fundraising environment.
“There’s not as much capital chasing PE funds as there were two-three years ago,” Pugmire said.
Pugmire said the system’s private equity distributions exceeded contributions by $47 million, with expected distributions at around $100 million.
According to Pugmire, much of the system’s exposure comes through 2015-2017 vintage year funds. “We’re now expecting them to distribute more capital,” he said.
High interest rates may delay distributions as managers hold assets until the market improves, Pugmire said.