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MassPRIM builds co-invest bench, focuses mainly on re-ups

  • Adds three GPs to the co-investment bench
  • Private equity commitments are mostly re-ups
  • New relationships focus on lower-middle markets

Massachusetts Pension Reserves Investment Management Board added Thompson Street Capital Partners, Polaris Partners and Providence Equity Partners to its co-investment manager bench for opportunities the staff manages in-house.

The MassPRIM board approved the co-investment program in 2014 and instituted a co-investment bench of managers with which the system would work.

MassPRIM staff will manage these co-investments internally and targeted up to $140 million in co-investments that bear no fee and no carried interest, according to documents.

The board had made six private equity co-investments, ranging $10 million to $20 million, as of February, 2018. The co-investments are not to exceed 10 percent of annual PE commitments, pension documents show.

Other managers on the co-investment bench include Waterland Private Equity, Chequers Capital and Stone Point Capital. MassPRIM has also invested $20 million in Berkshire Fund IX Co-Investment LP.

Many LPs look for ways to co-invest with managers as a way to get direct exposure to investments in private companies with no fees attached. Pension systems like that in Massachusetts have instituted co-investment programs and hired people to make these investments a more significant part of their investment platforms.

On the fund-commitment side, more than 90 percent of MassPRIM’s recent $535 million of private equity commitments are to existing general-partner relationships.

MassPRIM made a second re-up to Thoma Bravo this year with $150 million for its 13th fund, which is expected to raise $9 billion. Earlier in the year the pension fund committed $100 million to Thoma Bravo’s second Discover fund. The fund has previously invested in 10 Thoma Bravo funds.

The pension fund also re-upped $150 million to TowerBrook Capital Partners’ fifth fund and $75 million to its second structured opportunities fund.  It has invested in two prior TowerBrook funds.

Two of the three new commitments are extensions of existing GP relationships at the pension fund. Additionally, the new relationships are focused on lower-middle markets, a sector MassPRIM has been steadily increasing investments in, according to pension documents.

For instance, MassPRIM invested for the first time in Providence Strategic Growth Capital Partners, an affiliate of Providence Equity Partners, committing $75 million to its third fund. It has invested in five Providence Equity funds since 2001.

Providence Strategic’s third fund will target PE investments in lower-middle-market, growth-oriented companies primarily in the U.S.

MassPRIM previously invested in four Polaris Partners funds. It has committed $35 million to the first Polaris growth fund, which is expected to raise $175 million in aggregate commitments.

The growth fund will target buyouts of lower-middle-market software and technology-enabled-services companies in North America.

MassPRIM made its first commitment of $50 million to Thompson Street Capital Partners’ fifth fund.  The PE firm targets buyouts in the Midwest and Mid-South regions of the U.S.

It focuses on sectors like software and technology, healthcare and life sciences, business services and engineered products. Its fifth fund is expected to raise $1.2 billion in commitments.

This year the $71.6 billion pension fund has committed $785 million to its private equity portfolio, more than a third of its $1.8 billion target for 2018.

MassPRIM’s PE portfolio includes special equity and venture capital. Buyouts accounted for 74 percent of the $7.5 billion private equity portfolio as on Sept. 30, 2017.

The portfolio had more than 100 private equity managers and 200 partnerships as of Sept.30, 2017.

MassPRIM’s actual PE allocation was 10.5 percent as of March 31, 2018, and it has a long-term midpoint target of 12 percent.

The private equity portfolio generated 25 percent for the year ended March 31, 2018, the highest among all asset classes for the fund.

It returned 19.1 percent over the three-year period, 19.6 percent over the five-year, and 13.1 percent over the 10-year, and had a net IRR of 13.42 percent as of March 31, 2018.