Maine eyes commitments to new mid-market managers

Maine Public Employees Retirement System will consider commitments to new managers as it sees opportunities in mid-market and smaller funds.

Most institutional investors are focusing on re-ups with existing managers due to liquidity constraints and overallocations to private equity. Maine looks to take a different approach, believing more advantages exist with smaller funds.

The $18.8 billion Maine system discussed its manager selection strategy and pacing plan at its December 14 board meeting. Buyouts watched a broadcast of the meeting.

Maine will commit around $1 billion to private equity funds over the next three years, according to a presentation made by chief investment officer James Bennett.

“We see a lot of opportunities in the mid-market and smaller funds. But we still have the capacity to make larger commitments with larger funds,” Bennett said.

Large buyout transactions have become more efficient over the years, making it less likely for managers to find investments at a discount, explained a representative from consultant Cliffwater.

The smaller market allows for managers to find better deals, according to the representative.

Bennett described the system’s $25 million commitment made to Long Ridge Equity Partners IV as an example of a smaller fund the system is looking to work with. Long Ridge IV at $730 million in July, the manager announced.

Maine also faces an overallocation to private equity. According to board documents, the system currently allocates 19.2 percent of its total fund to private equity, above its 12.5 percent target.

Maine reduced its target allocation from 15 percent to 12.5 percent to meet a deadline set by the state’s legislature to eliminate its unfunded liabilities and still suffers from the lingering impact of the denominator effect.

The pacing plan will bring Maine’s allocation down to 10 percent over the next few years.

The extra 2.5 percent will allow the system to make co-investments, Bennett said.