Nebraska’s state investment system, lagging peers, considers hiking PE target

Nebraska stands as an outlier with a 5% allocation to private equity, which is below most of its peers.

Nebraska Investment Council will consider increasing its allocation to private equity at its next board meeting.

Public pension systems have considered target allocations and upcoming pacing plans over the past few months as they navigate a volatile economy, slowing distributions and the continued impact of the denominator effect.

Nebraska stands as an outlier compared with many public retirement systems of its size as the $34.5 billion investment system currently allocates 5 percent to private equity, below many of its peers.

The system will discuss a possible hike of its targeted allocation at its meeting scheduled for February 9, according to board documents released in advance of the meeting.

No specifics were provided in the agenda about the potential increased allocation Nebraska is considering. But a related presentation from consultant Aon comparing Nebraska’s private equity portfolio to those of its peers gave information about projected returns if Nebraska increased its target to either 7.5 percent or 10 percent.

Aon’s “best thinking” says Nebraska should invest in five funds per year, up from the current three funds per year it targets, should the system increase its allocation to private equity.

According to Aon, increasing the allocation while only placing commitments to three funds per year would require Nebraska to increase its commitment size meaningfully, while possibly limiting the universe of funds it could commit to.

Increasing the target allocation to private equity would also require changes to Nebraska’s investment policy statement, the presentation said.

According to the presentation, 80 of Nebraska’s closest peers averaged a 10 percent target allocation to private equity.

Nebraska’s investment council oversees investments across 32 separate programs, which includes several defined benefit pension plans and 11 public endowments.

Currently, Nebraska’s endowment portfolios are limited to investing in funds-of-funds. Hiking the target would most likely require the endowment to start investing in private equity funds, which would require a policy change, according to Aon’s presentation.

Nebraska’s largest private equity holdings include investments in McCarthy Capital Fund VI, Genstar Capital Partners VIII, Green Equity Investors VII and Resolute Funds IV and V.