LPs

New Hampshire pension sees PE imbalance amid flood of distributions

Private equity performance, which lags public markets by a quarter or more, has remained strong as public holdings have been battered by the volatile markets.

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New Hampshire Retirement System’s private equity allocation exceeded its target as the system received more in distributions than contributions for the first time, according to a presentation from investment consultant Callan.

The math reflects the havoc the denominator effect has caused for pension systems throughout the country. Private equity performance, which lags public markets by a quarter or more, has remained strong as public holdings have been battered by the volatile markets. This has caused private equity as a percentage of the total investment fund to grow to outsized levels, sometimes over policy targets.

A 37 percent return in its PE portfolio brought New Hampshire’s actual allocation to 13.9 percent, above its 10 percent target, according to Callan’s presentation given at New Hampshire’s last board meeting in June.

New Hampshire can allocate between 5 and 25 percent to alternatives, which includes private equity, according to the presentation.

The overweight PE allocation came amid $400 million in distributions being returned to the $11.3 billion system in 2021, which exceeded $260 million in capital contributions made during the year, Callan said in the presentation.

This marked the first time private equity generated positive cash flow since the program was established in 2009, the presentation said.

Since the start of 2022, New Hampshire made four commitments totaling $200 million. The commitments were $50 million each to Thoma Bravo XV, Clearlake Capital Partners VII, Warburg Pincus Global Growth 14 and Dover Street XI, the presentation said.

New Hampshire has $50 million remaining in possible PE contributions for the rest of 2022, according to Callan’s presentation.

According to the presentation, more than 22 percent of the private equity portfolio’s net asset value was dedicated to co-investments. Buyout and growth equity holdings each comprised 18 percent of the private equity portfolio’s valuation.

New Hampshire’s four largest GP partners are BlackRock Private Equity Partners, Thoma Bravo, HarbourVest Partners and Industry Ventures, the presentation said.