Pension Investor: Oregon Investment Council
Assets Managed: $81 billion (March 2013)
PE Assets Managed (Main Fund): $14.1 billion (March 2013)
PE Allocation / Target (Main Fund): 23% / 16%
Chief Investment Officer: John Skjervem
Oregon’s main pension fund has $14.1 billion in private equity assets, about 23 percent of its assets, which is well above its 16 percent private equity target. That amount does not include the 12 percent that the pension has in real estate assets or the 1 percent in alternative investments, which are separate from its private equity portfolio.
The biggest of the three commitments was a $400 million pledge to Lone Star, a Dallas-based distressed-debt investor. The commitment to Lone Star Fund VIII LP is Oregon’s 10th investment with the firm. Since 1995, Oregon has committed $2.3 billion to Lone Star funds, making the firm one of the council’s biggest GP relationships.
The new fund, which has a $5 billion target, is set to invest in distressed loans, including “residential, corporate and consumer debt products” along with “asset-rich” operating companies. The fund will spread investments geographically to include a 40 percent allocation to the United States, 40 percent to Europe and 20 percent to Japan.
Lone Star’s two previous flagship funds have performed well. The firm’s 2008-vintage Fund VI has returned a net IRR of 16 percent and a net return multiple of 1.8x, according to September 2012 data from Oregon. The firm’s 2010-vintage Fund VII has so far returned a net IRR of 27 percent and a net return multiple of 1.6x.
Oregon’s $400 million commitment was $100 million more than the $300 million that was initially recommended by TorreyCove Capital Partners, Oregon’s private equity consultant. But Sinks said that because the fund was expected to be oversubscribed, the council decided to pledge more than the recommended amount in the hope of ending up with an allocation that is close to the $300 million that Oregon seeks to ultimately receive upon the fund’s final close.
The second investment, for $300 million, was to Apollo’s newest flagship fund, Apollo Investment Fund VIII LP, which has a $12 billion target. The firm’s previous flagship fund, Fund VII, closed in 2008 having raised $14.9 billion. The firm will invest the fund in buyouts and debt instruments, and most investments will be in North America.
Oregon invested in the two previous Apollo flagship funds, committing $200 million to the 2006-vintage Fund VI and $400 million to the 2008-vintage Fund VII. According to Oregon data from September 2012, Fund VI has returned a net IRR of 8 percent and a net return multiple of 1.3x, while Fund VII has fared better, returning a net IRR of 25 percent and a net return multiple of 1.5x.
Finally, the council pledged $250 million to an opportunistic fund from Blackstone Group, the Blackstone Tactical Opportunities Fund LP. The fund, which seeks to make opportunistic investments across a variety of strategies and assets, has also received sizable pledges from the New Jersey Division of Investment and the California Public Employees’ Retirement System.
According to a fund outline provided by the council, the fund’s strategies include financial institution deleveraging, mortgage assets, insurance and shipping assets. In addition, “many of the opportunities require quick action to capture brief market dislocations that may be temporary in nature.”
The fund also has some other interesting attributes, including low management fees and a “lower than market” investment carry, according to TorreyCove’s fund outline, although there is no preferred return hurdle rate. Also, the fund’s investment period is just three years.
The Tactical Opportunities Fund does not have a target or cap, and it is designed as a managed account with just a few large investors, mainly large pensions and sovereign wealth funds.