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LP Scorecard: Minnesota real-assets portfolio takes home gold, beats PE

Minnesota State Board of Investment’s real-assets portfolio has outperformed the $22.8 billion pension’s five other alternative portfolios, including private credit and private equity — a surprising result given that real assets and private credit are generally considered less risky strategies.

Real assets, with 35 funds, generated a 15.81 percent internal rate of return and a 1.47 multiple as of March 31, 2018. That compares with a 12.5 percent IRR and a 1.55 multiple delivered by the overall alternative-investments portfolio, which consists of 224 funds dating from 1985 to 2018.

In second place was the 24-fund private-credit portfolio, with an IRR of 13.05 percent and a 1.48 multiple. The 119-fund PE portfolio was third with an IRR of 12.49 percent and a 1.62 multiple.

It’s important not to make too much of the relative performance rankings of the different strategies. Many funds have yet to reach the 10-year mark and their final performance isn’t known for sure.

In addition, the PE portfolio is by far the largest of the three; that size makes it more difficult to outperform industry benchmarks.

With committed capital of $11.8 billion and distributions to date of $8.8 billion, private equity still beat the other asset classes in investment multiple, at 1.62.

Minnesota’s star PE fund was Brookfield Capital Partners Fund IV, with an IRR of 92.63 percent as of March 31. Next in line were Summit Partners Growth Equity Fund IX with an IRR of 69.91 percent and Strategic Partners VII with a 63.44 percent IRR.

The three funds were also the top three performers across the entire alternatives portfolio in terms of IRR.

Within real assets Merit Energy Partners C provided the highest IRR, at 31.12 percent.

Close behind was was First Reserve Fund X with an IRR of 31.05 percent. Merit Energy Partners I produced an IRR of 30.2 in third place.

In private credit, TCW/Crescent Mezzanine Partners III produced the highest IRR at 35.88 percent. Next up were CM Liquidating Partnership and William Blair Mezzanine Capital Fund III with IRRs of 16.45 percent and 15.51 percent.

All told, MSBI’s alternative investment portfolio has more than $22.8 billion committed to 224 funds. The funds totaled about $16.6 billion drawn down and $16.5 billion cashed out as of March 31, 2018.