Wayne D. Smith, senior investment officer for MassPRIM’s alternative investments, says that he and his team plan to identify players in the energy sector and meet with fund managers beginning this spring.
Alternative investments have generated high returns for MassPRIM over the past decade. The asset class’s return from the end of February 2007 to the end of Feb. 2008 was 39.6 percent. Since 1986, when MassPRIM began committing to alternative investments, the asset class has yielded a 15.7% return, according to Smith.
Still, with the economy slowing and buyout firms struggling to do new deals, Smith says he doubts that LBO shops would reproduce in 2008 the returns they achieved in the previous seven years. Although MassPRIM’s returns on its alternative investments have not yet suffered from the economic slowdown, that will likely change by June 30, when the LP finalizes its second quarter numbers, he says.
“Since 2000, performance has been extraordinary for private equity,” he says. “We’re heading into a more difficult time.”
The state pension fund’s official target allocation to alternatives is 9 percent. Within that, 80% is earmarked to LBO funds and 20% to venture capital. Until this year, the target allocation to alternatives stood at 10%, but the MassPRIM board dropped the target to 9% in January, anticipating that it would take five years to reach the former goal.
“We did it to reflect a closer allocation to where we actually are,” Smith says.
So far in 2008, buyout funds have attracted the majority of the Boston-based LP’s commitments. The state pension fund committed $152 million to
In addition, MassPRIM committed $30 million to