- New commitments: Charlesbank, Sycamore funds
- Continues focus on mid-market re-ups, co-invests
- $70 bln system backs Carlyle’s new large-cap fund
State of Michigan Retirement Systems plans to continue focusing on re-ups with middle-market funds, a strategy update in its most recent investment report shows.
“The private equity division has also tilted slightly toward the middle market in an attempt to diversify its exposure to mega funds. Co-investments will play an increasingly important role in both averaging down costs and targeting specific investments with attractive risk/return characteristics,” according to the report, which also summarized investments made in Q4.
Like many large-scale PE investors, Michigan’s $70 billion system has increasingly signaled its preference for funds operating down-market from some of the industry’s largest and most prominent firms.
Smaller companies often can be purchased at lower purchase-price multiples than larger companies, an important consideration as firms look to deploy a glut of available capital in new deals.
PPMs, measured as a multiple of a company’s annual earnings, climbed to a median 10.5x in 2017 from 8.3x in 2012, Pitchbook reports.
Michigan’s Q4 commitments included allocations to mid-market buyout funds managed by firms like Charlesbank Capital Partners and Sycamore Partners and a co-investment vehicle that will invest alongside Berkshire Partners’ new $5.5 billion flagship fund.
The retirement system still had appetite for large-cap PE funds as well, committing $250 million to Carlyle Partners VII, which has raised more than $15.5 billion. Michigan also committed $175 million to a $6 billion fund managed by Affinity Equity Partners.
State of Michigan Retirement Systems committed $770 million to private equity funds in Q4.
It allocated another $475 million across private-credit-related strategies managed by teams at Apollo Global Management, Riverside Co and TPG, according to the investment report.
The PE program, valued at a little more than $10.6 billion, represented 15.2 percent of Michigan’s total investment assets as of Dec. 31. The portfolio grew by around 11 percent year-over-year.