MassPRIM commits $600 mln, expands PE program

  • AUM: $71.8 bln
  • Target allocation to PE: 12 pct
  • Actual allocation to PE: 10.8 pct
  • PE strategy: In its recent Fiscal Year 2019 Goals and Objectives, staff proposed that MassPRIM raise its target allocation for private equity from 11 to 12 pct.
  • Key advisers/consultants: Cortex Applied Research
  • Whom to contact for a meeting: Stephanie Rosario (
  • Why this is important: MassPRIM commits $600 mln across three mid-market buyout funds while announcing an expansion of its private equity program for the upcoming year.

Massachusetts Pension Reserves Investment Management Board committed $600 million across three funds, almost matching its total prior allocation to private equity this year.

The board of the $78.1 billion retirement system, which convened last week, committed $300 million to Hellman & Friedman Capital Partners Fund IX, $150 million to Technology Crossover Ventures X and $150 million to Lovell Minnick Equity Partners V.

All three commitments are re-ups, according to documents obtained by Buyouts.

Mass PRIM has a longstanding relationship with Hellman & Friedman, having previously invested in six of its funds since 1995.

Fund IX, expected to close in the fall, is targeting $15 billion for large European and North American buyouts. Fund VIII performance was not available. Fund VII posted a 25 percent internal rate of return as recently as September 2017, according to a memo from Minnesota State Board of Investment.

Similarly, the retirement system has established links with TCV, committing to four of its funds since 2006. The firm’s most recent flagship will continue to make growth-equity investments in technology and has a fundraising target of $1 billion to $1.25 billion. As of December 2017, its predecessor, Fund IX, had an IRR of -12.99 percent, reported Colorado Public Employees’ Retirement Association.

Lovell Minnick is the youngest relationship of the three, with only one previous commitment from the New England pension fund dating to 2015. Fund V focuses on control and non-control middle-market financial-services companies and will also close this fall.

MassPRIM also seized the opportunity of this month’s board meeting to review its goals and objectives for FY 2019. Private equity has been a star performer this past year, netting a 21.8 percent return on investment.

“What really drives the bus here at PRIM, private equity, across all time periods, was very, very strong,” said CIO Michael Trotsky. “And in private equity we know of no funds in the country that outperformed us over the 10-year period.”

Annualized returns for PE stand at 13.6 percent over the past 10 years. In 2018, it returned 19.9 percent.

In response to these findings, the board moved to increase the pension’s target allocation to private equity for the new fiscal year to 12 percent from 11 percent, committing, on average, $1.5 billion to $2.1 billion a year.

The pension also said it intended to expand its co-investment program to account for 10 percent of its annual fund commitments.

Meanwhile, on investment strategy, Massachusetts has readjusted its policy to increase its portfolio weightings to small/mid-cap buyouts and growth-equity managers.

Despite these successes, the 19th-largest public pension in the country is seeking to save on investment costs. Under this arrangement, the pension will further increase its capacity for co-investment to avoid costly management fees and maximize returns.

“Global equity makes up 39 percent of the [Pension Reserves Investment Trust] fund but requires only 18 percent of the operating budget,” said COO Anthony Falzone, “while the private equity allocation, which is traditionally our highest-performing asset class at 12 percent … [is] expensive and requires 28 percent of the fiscal year 2019 operating budget.”

Some progress has already been made on this front, however, as the ratio of total expenses improved in fiscal 2018 to 53 basis points from 54 a year earlier.