MassPRIM plans to double coinvesting amid soaring PE returns

The pension systems’ coinvestment program has saved $40m since inception in 2014 and with the approval to double co-investment capital, it will save $38m annually going forward.

Massachusetts Pension Reserves Investment Management Board intends to go even bigger into co-investments as its private equity portfolio has seen sky-high returns recently.

MassPRIM plans to boost co-investment capacity to just over $1 billion, from $540 million. The board voted Dec. 2 to increase its target for coinvesting to 40 percent of total private equity annual commitments, from 20 percent.

“We won’t get to the 40 percent high-water mark anytime soon, but this gives us additional flexibility which will be good,” said Michael McGirr, director of private equity at Massachusetts PRIM. “We are encouraged by program’s progress thus far.”

Since program launch in 2015, PRIM completed 51 coinvestments as of September 30, 2021. The system has coinvestments with 28 managers, with a split of 22 buyout and six growth equity managers. MassPRIM filters out coinvestment opportunities that charge fees and carried interest.

The pension systems’ coinvestment program saved $40 million since inception in 2014 and with the approval to double co-investment capital, it will save $38 million annually going forward.

“Co-investments make up roughly 5 percent of our overall PE portfolio and this has been our most active year in that space so far,” said McGirr. “We are getting close to that old 20 percent threshold, so the timing is perfect.”

As of June 30, 2021, the coinvestment program has a 26.2 percent IRR, 0.25x DPI and 1.50x total value to paid-in multiple.

The system’s private equity target is between 11 percent and 17 percent. The PE portfolio was generating a 68.5 percent gross and 66.6 percent net return this year – which puts it even with its benchmark of 68.5 percent. For the third quarter, the portfolio generated a 14.38 percent net IRR.

“Overall, PE has been strong, and we saw a net value gain of almost $2 billion in the most recent quarter and 70 percent of our PE funds made a positive contribution in the quarter,” he said. “Buyouts specifically is up 12 percent for the quarter and for the year, is in the high 50s to low 60s.”

As of June 30, 2021, PE is returning 31 percent three years out, 28.1 percent five years out and 21.9 percent 10 years out and the fair value of the PE portfolio was $8.6 billion.