Massachusetts Pension Reserves Investment Management Board committed to KPS Capital Partners’ fifth flagship fund and its debut mid-cap fund, according to a packet prepared for its October meeting.
MassPRIM committed $75 million to KPS Special Situations Fund V and $40 million to KPS Special Situations Mid-Cap Fund.
Those funds closed oversubscribed earlier this month, Buyouts reported. Fund V closed at $6.12 billion and the Mid-Cap Fund at just over $1 billion. Both funds will focus on corporate carve-outs, turnarounds, restructurings and bankruptcies. The Mid-Cap Fund will execute the same strategy as the flagship, but will target smaller companies in the lower middle market that require up to $100 million in capital.
Both funds have a unique fee structure, with a 1.5 percent management fee and a 30 percent carried interest rate. Traditionally, private equity funds have only a 20 percent carry. KPS Founder Michael Psaros told sister publication Private Equity International, “the market has spoken” about the higher carry, as demand for Fund V was over twice as much as where it closed.
MassPRIM’s report said it had committed about $1.2 billion to private equity so far in 2019 and aimed to commit $1.4 billion to $2 billion by the end of the year.
The board also began the process of choosing a private equity adviser. Its current contract with Hamilton Lane expires next September.
MassPRIM also provided updated returns for the third quarter of 2019. As of Sept. 30, its one-year private equity returns were 14.4 percent. As of June 30, they were 18.5 percent. Private equity returns were 4.6 percent for 2019 Q3 alone. All these numbers are gross of fees.
Overall one-year returns for the $76 billion trust for which MassPRIM invests were were 4.7 percent as of Sept. 30, below its 5.6 percent benchmark. Three-year, five-year and 10-year returns were all above the benchmarks.
Action Item: Read MassPRIM’s 2019 second quarter update here.