Kansas City Public Schools Retirement System may make its first commitments to private equity in several years to reduce its overallocation to the asset class.
In today’s market, that may seem counterintuitive. However, it is indicative of problems smaller allocators face in portfolio construction due to their limited commitment amounts and inconsistent pacing while enduring the swings of the public market.
The $645.6 million Kansas City Schools is a prime, if not extreme, example of this trend. Consultant Segal Marco Advisors reviewed the system’s private equity program and pacing plan at its November 6 investment committee and board meeting. Buyouts reviewed Segal’s presentation.
Kansas City Schools targets 8 percent of its total fund to private equity and currently allocates nearly 11 percent to the asset class. The system has committed a total of $122.5 million to six fund of funds, Segal said.
Kansas City Schools’ two most recent commitments were made in 2017. Before that, it had not made a commitment to private equity since 2011, according to the presentation.
As a result, the system has contributed $100.5 million of its total commitments – or 82 percent, according to Segal.
The value of Kansas City Schools’ private equity investments will quickly reduce as the funds near the end of their life cycle, which will reduce the total fund’s allocation. According to Segal, without any new commitments, the allocation would drop to 6.7 percent by 2027 and 3.3 percent by 2029.
Committing $10 million annually over the next five years would reduce the allocation to private equity at a more measured pace, hitting the 8 percent target by 2027, Segal said.
According to the presentation, Kansas City Schools has contributed just over $7 million more to its GPs than it has received in distributions. The system should become net cashflow positive in 2026.