Michigan re-launches co-investment program to battle fees

“For the past few years the fund has not committed new investment dollars to private equity co-investments as we were near [the] target allocation for private equity,” Michigan spokesman Terry Stanton said in an email. “Over the last year or so, as distributions have come in strongly, we are in a position to consider committing new dollars to co-investments (including possibly some secondaries, depending on pricing).”

Michigan’s private equity portfolio returned roughly $2 billion to the pension fund last year, causing its allocation to fall from 18.9 percent to 16.3 percent, according to the report. The retirement system has an 18 percent target allocation to private equity.

All of Michigan’s new co-investments will be sourced by third-party managers, Stanton said.

Michigan did not co-invest between 2008 and 2014, Stanton said. Last year, the state’s $60.6 billion retirement system committed $25 million to a co-investment vehicle that will invest alongside Veritas Capital’s fifth flagship fund, which closed on $1.87 billion last year, according to state documents. Michigan also did a deal alongside middle-market energy specialist Turnbridge Capital Partners in 2014, Stanton said.

In addition to outlining the retirement system’s co-investment strategy, the March 5 report also disclosed new commitments to private equity funds. Michigan committed $420 million to private equity during the fourth quarter, including $150 million for TPG Capital’s new flagship fund, which recently held a first close on $6.5 billion.

Other fourth quarter commitments included:

• $100 million for Kelso Investment Associates IX, a middle-market buyout fund that held a first close on $1.3 billion in November;
  
• $100 million for Freeman Spogli’s seventh flagship fund. The firm closed Fund VII on $1.3 billion in October;
• $50 million for Public Pension Capital, an evergreen fund that pursues investments in small and middle-market companies; and
• $20 million for Advent Latin American Private Equity Fund VI, a $2.1 billion Latin American fund.

Michigan committed heavily to venture capital during the fourth quarter: It allocated $150 million across a pair of funds managed by New Leaf Venture Partners; committed $50 million to Khosla Ventures, which is reportedly targeting $1 billion for its fifth flagship fund; and committed $22 million to Flagship Ventures Fund V.

Michigan valued its private equity portfolio at $9.9 billion as of Dec. 31, according to the report.