Missouri school pension slows PE pacing after $1 bln pledge in 2018

Missouri school pension system plans to commit up to $825 million to private equity funds and co-investments in 2019, after committing more than $1 billion to the asset class in 2018.

Public School and Education Employee Retirement Systems of Missouri, which has a combined $44 billion in assets, hired Pathway Capital Management to oversee its PE investments, through a discretionary fund-of-funds relationship, an advisory relationship and a co-investment program.

Pathway at the April 15 meeting provided the Missouri system with an annual review of the asset class, including 2019 pacing plans.

For the year, the system plans to commit $550 million to $625 million to PE funds, with an additional $170 million to $200 million earmarked for co-investments.

Pathway plans to make 17 to 23 fund investments and eight to 12 co-investments on the pensions’ behalf, and has already committed $109.4 million to four PE funds as of March 31.

That pacing would be a step back from 2018, when the pensions committed $739.6 million to 20 private equity partnerships and $264.9 million to 18 co-investments.

Co-investments are a relatively new addition to the Missouri system’s portfolio, but the pensions have committed $1 billion to two Pathway co-investment funds since 2014.

The pensions have committed $589 million from those co-investment vehicles, exhausting the first $400 million commitment and making its first co-investments from the second $600 million vehicle in 2018.

Through the Pathway vehicles, the pensions have committed to 49 co-investments and two follow-on co-investments with 31 GPs.

The Missouri pensions hope to use co-investments to save on fees and will pay no carried interest or management fees on the co-investments completed to date, Pathway’s presentation shows.

The co-investment portfolio saved the pension systems an estimated $15.7 million in fees and an estimated $14.5 million in carried interest, according to Pathway.

The co-investment portfolio has performed well so far, with a net return of 17.9 percent as of Dec. 31, according to Pathway.

The Missouri school pensions have a 10.8 percent allocation to PE, with a 12 percent long-term target. The PE portfolio is 39 percent small and medium buyouts, 21 percent large and megabuyouts, 17 percent special situations, 15 percent venture and 8 percent debt-related.

Action Item: Find out more about the Missouri school pensions’ asset allocation here https://bit.ly/2Up0IXK