MassPRIM increases PE target, commits $480 mln to GPs

Massachusetts Pension Reserves Investment Management Board approved a 1 percentage point increase in its target allocation to private equity at its February meeting, while also committing $480 million to new PE strategies.

MassPRIM, which manages $69.3 billion in its pension trust, voted to increase its private equity allocation to 12 percent from 11 percent, with a new target range of 10 to 16 percent. Its current allocation is 11.6 percent, including a 3 percent allocation to growth and venture investments.

MassPRIM’s new commitments went to funds managed by Blackstone Group, Providence Equity Partners, American Industrial Partners, Spark Capital and Lovell Minnick Partners.

MassPRIM’s biggest commitment for February was a $250 million allocation to Blackstone Capital Partners VIII, a $20 billion mega-buyout fund. MassPRIM has invested in six prior Blackstone funds since 1993. The pension expects Blackstone’s eighth fund to have a first closing in March 2019.

MassPRIM also committed $100 million to Providence Strategic Growth IV, a $2 billion fund focused on lower-middle market software and technology companies in North America. PRIM has invested in six previous Providence Equity Partners funds since 2001, and expects Fund IV to have a final closing in March 2019.

The pension fund also added a new GP to its roster, committing $75 million to American Industrial Partners Capital Fund VII. The $3 billion fund will focus on buyouts of middle-market industrial businesses headquartered in North America. American Industrial Partners was also added to MassPRIM’s list of managers that are pre-approved for co-investment opportunities.

MassPRIM made two commitments to Spark Capital funds, committing $10 million to Spark Capital VI, and $20 million to Spark Capital Growth III. Spark Capital VI, which has a target size of $400 million, targets start-ups while Spark Growth III, targeting $800 million, focuses on later stage businesses. PRIM has invested in seven prior Spark Capital funds since 2005.

The retirement fund also approved an increased allocation to Lovell Minnick Equity Partners V, which it initially committed to in August 2018. PRIM committed $150 million at that time, and Lovell Minnick offered PRIM an additional $25 million commitment recently, bringing the total commitment to $175 million, according to meeting documents.

MassPRIM plans to commit between $1.4 billion and $2 billion to private equity in 2019, while also raising its co-investment capacity to 20 percent of its annual fund commitments.

Those goals are in line with last year’s numbers, when MassPRIM fell short of its $1.8 billion commitment goal but still made $1.56 billion in commitments to 17 funds. Its largest 2018 commitment was a $300 million investment with Hellman & Friedman Fund IX.

Nearly all of MassPRIM’s 2018 commitments were re-ups, although the pension system did welcome two new managers to its portfolio, allocating $70 million to JMI Equity Fund IX and $55 million to Thompson Street Capital Partners V.

MassPRIM aimed for the smaller end of the market in 2018 PE investments, targeting 64 percent of its investments to small and mid-cap buyout and growth equity funds.

Private equity was MassPRIM’s best-performing asset class in 2018, returning 24.5 percent at a time when the overall portfolio was down 1.8 percent. The 24.5 percent return, however, was gross of fees, and MassPRIM did not include a net-of-fees return number in its February meeting materials.

Action Item: Check out MassPRIM’s most recent investment performance report here https://bit.ly/2GPtw9z