North Dakota revives PE program with new asset allocations

  • Two state pensions raise allocations to PE
  • North Dakota to deepen relationships with Adams Street, BlackRock
  • State Investment Board stopped making new commitments in 2011

North Dakota State Investment Boardmoved forward with plans to breathe new life into its once-dormant private equity program.

“Asset liability studies conducted by our client boards incorporated a revised asset allocation framework, which included a slight increase to private equity and a slight reduction to private timber along with other smaller changes to our fixed-income, real estate and cash allocations,” Executive Director and Chief Investment Officer David Hunter told Buyouts via email.

The state’s two largest pension funds, Teachers’ Fund for Retirement and North Dakota Public Employees Retirement System, increased their allocations to PE in recent months.

The State Investment Board, which oversees both retirement systems’ portfolios, earlier this year approved TFFR’s plan to increase its PE-allocation target to 6 percent from 5 percent. The board approved a similar plan to raise PERS’s PE target to 7 percent from 5 percent at its July 22 meeting.

PERS maintains a slightly higher return expectation for its overall investment portfolio than TFFR — 8 percent vs. 7.75 percent — which is why it carved out a larger allocation for high-returning private equity strategies, according to state documents. Both pensions held 4 percent of their assets in PE as of June 30, 2015, according to North Dakota documents.

To accommodate the increase, the state board plans to allocate as much as $100 million each year across PE funds managed by Adams Street Partners and BlackRock, Hunter said.

Reviving the program

The new investment plan represents something of a rebirth for North Dakota, which was a relatively active LP for more than a decade before it stopped making new commitments in 2011. Its active portfolio includes crisis-era vintages from Corsair CapitalMatlinPatterson and Quantum Energy Partners, a summary of its holdings shows.

North Dakota grew more active over the previous 10 months, having allocated $30 million each to Adams Street’s 2015 and 2016 funds-of-funds, according to state documents.

Prior to raising its pensions’ allocations to PE, and making its first commitments in roughly five years, North Dakota reviewed its asset-allocation strategy to determine its appetite for the asset class, Hunter wrote.

“Given the long-term nature of investing in this asset class, we needed to complete an intensive due-diligence examination of the PE market and reaffirm our client board’s commitment to this long-term and less liquid investment,” he wrote.

North Dakota State Investment Board manages $10.7 billion of state assets, its most recent annual report shows.

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