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North Dakota commits to Adams Street, BlackRock as it tries to improve PE performance

  • Assets under management: $13.7 bln
  • Actual allocation to PE: 3.3 pct
  • Target allocation to PE: 6.5 pct
  • Whom to contact: David Hunter, chief investment officer: (djhunter@nd.gov)
  • Why this is important: LPs rely on fund-of-one relationships to improve PE returns

North Dakota State Investment Board recently pledged $80 million across two fund-of-one relationships as it works to improve the performance of its private equity program.

The board at its Aug. 24 meeting re-upped $65 million to Adams Street Partners’ 2018 Global Private Equity Fund and $15 million to BlackRock, said Chief Investment Officer David Hunter.

The $13.7 billion North Dakota SIB manages the investments of 15 funds, including pension, insurance and legacy funds. Only the $5.7 billion pension trust fund makes private equity investments. Its $191 million in private equity investments are routed through two fund-of-one accounts with Adams Street and BlackRock.

The fund-of-one relationships are part of North Dakota SIB’s initiatives to improve the pension trust’s private equity performance, Hunter said. The private equity portfolio comprises private equity, venture capital and debt. The fund-of-one relationships explore both direct and co-investment opportunities, Hunter said.

Previously North Dakota SIB committed a total of $90 million to three Adams Street funds from 2015 to 2017. It also committed $200 million to BlackRock over four years after approving it as a fund-of-one in 2017, Hunter said.

The pension trust’s PE portfolio has underperformed mainly because of investments made before 2013, Hunter said.

Those legacy investments include funds from Capital International Group, Corsair Capital, Lewis & Clark Capital, MatlinPatterson and Quantum Energy Partners. Many continue to impact the portfolio’s returns, documents show.

For instance, Capital International’s fifth fund returned a negative 20 percent and the Lewis & Clark fund returned negative 17.39 percent over five years as of June 30, 2018, documents said.

North Dakota plans to sell some non-strategic private equity investments on the secondary market, Hunter said. Others will fade out of the portfolio at the end of their terms, he said.

In addition, the pension trust wants to add more credit strategies for better returns, Hunter said.

North Dakota pension trust’s private equity portfolio underperformed against its benchmarks, returning 5.25 percent over one year, 2.76 percent over three years, and 1.33 percent over five years as of June 30, 2018, documents said.

The Russell 1000 Index returned 14.54 percent over one year, 11.64 percent over three years and 13.37 percent over five years for the same period.

“We are course correcting though it will take time before the PE portfolio returns are double digit,” Hunter said.

North Dakota pension trust is underallocated to private equity. As of June 30, it had an allocation of 3.3 percent compared with its target allocation of 6.5 percent.

North Dakota’s private equity portfolio stays away from investments in oil, gas and commodities, since the North Dakota Legacy Fund already makes those investments for North Dakota, he said.

North Dakota’s pension trust includes the Public Employees Retirement System (NDPERS) and Teachers’ Fund For Retirement (NDTFFR). The trust returned over 9.1 percent over one year and 8.3 percent over five years for period ended June 30, 2018, documents said.

Action Item: Read more about the North Dakota SIB investments here: https://bit.ly/2opHL9X