State of Michigan Retirement System saw about 14 percent private equity returns in fiscal year 2019 across the funds it oversees, well above its 12.8 percent benchmark, according to documents posted online for the state investment board’s September meeting.
The total value of Michigan’s PE portfolio as of June 30 was about $13.4 billion, spread across four commingled funds: Michigan Public School Employees’ Retirement System, Michigan State Employees’ Retirement System, Michigan State Police Retirement System and Michigan Judges’ Retirement System.
MPSERS makes up 77 percent of that private equity allocation. Its private market returns are the only ones Michigan included in its quarterly report. A spokesman said private market returns in the other funds are similar to that of MPSERS.
MPSERS also had three-year returns of 15.3 percent, five-year returns of 12.6 percent and 10-year returns of 15.4 percent, the report said. These numbers all under-performed their benchmarks, which were 16.9 percent, 14.2 percent and 19.4 percent, respectively.
As of June 30, the total value of Michigan’s fund was $74.46 billion. About 18 percent of that total was allocated to private equity, spread almost equally across all the funds. Almost $6 billion of that, or 44.5 percent, was in buyouts, 17.7 percent or $2.36 billion was in fund-of-funds, 13.5 percent or $1.8 billion was in special situation funds and 11.4 percent or $1.5 billion was in venture funds. Mezzanine funds accounted for 2.2 percent, or $295 million.
The best-performing PE asset class was fund-of-funds, which returned 10 percent. Buyouts returned 9.3 percent, mezzanine funds 8.1 percent, special situations 2.9 percent and venture capital 4 percent. Most of these numbers were as of Mar. 31, the documents said.
The largest industry focus was in information technology, which took up 24.6 percent of the portfolio, with healthcare taking up 16.3 percent and industrials 12.8 percent.
The board also announced just under $868 million in private equity commitments in the second quarter of 2019. The commitments are:
• $250 million to Advent International GPE IX, a global buyout fund managed by Advent International that closed at $17.5 billion in June;
• $150 million to Dover Street X, a global secondary fund managed by HarbourVest Partners that was eyeing a first close at $2.5 billion to $2.7 billion in May, according to sister publication Secondaries Investor, and has a $6.5 billion target, according to Private Equity International data;
• $100 million to Harvest Partners VIII, a middle-market buyout fund managed by Harvest Partners focused on North America with a $3.25 billion target, according to the Wall Street Journal;
• $65.4 million to Permira VII, a global large buyout fund run by Permira Advisers that closed Wednesday at €11 billion ($12.13 billion).
• $75 million to Clearlake Opportunities Partners Fund II, a non-control and special situations-focused fund managed by Clearlake Capital that closed at $1.4 billion in June;
• $75 million to HarbourVest Credit Opportunities Fund II, a global junior credit fund also managed by HarbourVest;
• $75 million to Warburg Pincus China-Southeast Asia II, a growth equity fund managed by Warburg Pincus that closed on $4.25 billion in June;
• $65 million to Vista Equity Endeavor Fund II, a lower middle-market growth fund managed by Vista Equity Partners that closed on $850 million in July;
• $12.5 million to Accel London VI, a Europe-focused multi-stage venture capital fund managed by Accel that closed in May on $575 million.
Action Item: Read Michigan’s September meeting materials here.