Pennsylvania Public School Employees’ Retirement System significantly increased its allocation to private co-investments, just months after cutting down its overall private equity target.
The limit on private equity co-investments saw the biggest increase, going from $1 billion to $1.5 billion, as the program is approaching $1 billion in size, according to a document posted on the pension’s website.
Co-investments charge no fees or carry and are a popular way for LPs to save money in an expensive asset class.
Senior risk manager Jospeh Sheva also told the board of trustees’ investment committee that the co-investments have performed well and deal flow was robust.
PA Schools also raised the limit for private credit co-investments from $250 million to $500 million.
A third category, co-investments and secondaries, which can apply to private equity, private credit or private real estate, had its limits of $50 million for an initial investment and $25 million to follow-up consolidated into a $75 million overall limit.
The pension also eliminated it special situations bucket within the private equity allocation, rolling it into buyouts. Sheva said this was a result of investment staff moving away from “debt-trading strategies” and focusing more on the two other buckets, buyouts and venture/growth equity.
Sheva said staff is “streamlining how they’re bucketing their strategy.”
As of September 30, 2020, PA Schools’ total fund value was $58.8 billion. Its private equity holdings were valued at $8.5 billion, taking up 14.4 percent of the portfolio, though they are valued on a quarter lag.
These changes come soon after the pension decided to reduce its private equity target from 15 percent to 12 percent, as Buyouts reported. The pension plans to reduce deployment to the asset class and also explore potential secondaries sales to right-size the portfolio, though the pension has not so far found secondaries pricing appealing.
The pension also committed $175 million to Apax Partners‘ latest digital fund, as Buyouts reported.
Action Item: read the changes to the PA Schools Investment Policy Statement here.