Oregon off to fast start, commits $1 bln to PE in early 2015

The Oregon Investment Council allocated up to $1.05 billion across eight private equity funds in January and February, putting the retirement system almost halfway toward its annual commitment target of $2.4 billion.

“It’s likely we will slow the pace a bit” from January and February levels to account for the $2.4 billion target, Oregon spokesman Michael Cox told Buyouts in an email.

Oregon would have no problem reaching $2.4 billion at the pace it set through early 2015. A draft of the minutes to the investment council’s Feb. 4 investment meeting indicated Oregon committed up to $700 million across five private equity funds in January (see table). At the investment council’s March 4 meeting, CIO John Skjervem announced three new commitments that could total as much as $350 million, Cox said, bringing the total to a little more than $1 billion so far this year.

The February commitments include allocations to an energy fund, EnCap Investments’ EnCap Energy Fund X, and two Asia-focused funds, GGV Capital’s GGV Capital Select and RRJ Capital’s RRJ Capital Master Fund III.

Cox said staff has not finalized all of the January and February commitments, which could change Oregon’s allocations to certain funds. Last year, staff walked away from approved commitments to Littlejohn Fund V and Sofinnova Venture Partners IX after failing to reach an agreement on terms.

Cox declined to specify which commitments could change. In December, Cox noted that Oregon may not reach the full $225 million it had allocated to Francisco Partners IV, a “popular” fund that reportedly increased its hard-cap from $2.5 billion earlier this year. Francisco Partners closed the vehicle on $2.875 billion in February.

In February, Oregon released a private equity investment plan that called for $3.1 billion of private equity commitments for all of 2015. The $68.6 billion retirement system subsequently rolled a $700 million commitment it made last year to TPG Capital into its 2015 allocation, leaving $2.4 billion for the year.

In a February email to Buyouts, Skjervem said a tightening of fund terms and conditions could lead Oregon to undershoot its target.

“If anything, we may do less as valuations are high and terms and conditions tight,” he said. “$2.4 (billion) is our base-case projection, but the most likely ‘miss’ would be less not more.”

Push back on fees

Oregon’s spate of commitments through early 2015 belies Skjervem’s recent comments, as well as his criticism of GP aggression over fund terms over the last year. In an October speech at PartnerConnect West in Half Moon Bay, Calif., Skjervem said LPs may reach a point where they have to reduce their allocation to private equity, rather than accept unfriendly terms from top-performing funds.

If institutions hold the line on fee negotiations, LPs may find they must commit to inferior managers more willing to accept LP friendly terms, he said. In that context, Oregon would likely reduce its allocation to the asset class.

“I would just see it as a really slow fade driven by walking away from deals where terms and conditions have tightened,” Skjervem said at the time.

The investment council had an opportunity to do just that its March 4 meeting, when it considered a new asset allocation mix that would have reduced its 20-percent private equity target by 2.5 percentage points. However, the council did not take action and will maintain its current allocation model, Cox said.

The Oregon Investment Council manages the investment assets of the Oregon Public Employees’ Retirement Fund, which valued its private equity portfolio at $14.8 billion as of Jan. 31. Oregon has a 21.5 percent allocation to private equity, slightly above its target.

Oregon 2015 Commitments
Fund	Manager	Amount	Month of commitment
EnCap Energy Capital Fund X	EnCap Investments	$150 mln	February
GGV Capital Select Fund	GGV Capital	$50 mln	February
KSL Capital Partners IV	KSL Capital Partners	$150 mln	January
OCM Opportunities Fund X	Oaktree Capital Management	$50 mln	January
OCM Opportunities Fund X (B)	Oaktree Capital Management	$100 mln	January
Rhone Partners V	Rhone Group	$200 mln	January
RRJ Capital Master Fund III	RRJ Capital	$150 mln	February
TPG Growth III	TPG Capital	$200 mln	January