PSERS forms $300 mln mid-market lending account with Cerberus

The Pennsylvania Public School Employees’ Retirement System (PSERS) committed up to $500 million to Cerberus Capital Management at its June 11 meeting, including up to $300 million for a separate account that will invest alongside the firm’s middle-market lending platform.

Cerberus and PSERS structured the account as an evergreen fund, which will give the $52 billion retirement system the ability to invest more into the vehicle over time, according to pension documents.

The Cerberus PSERS Levered Loan Opportunities Fund will invest on a pro-rata basis alongside Cerberus Business Finance, according to pension documents. The account will provide loans up to $100 million in size, typically to private equity-backed portfolio companies in North America.

The Stephen Feinberg-led firm will use the account for refinancings, buyouts, acquisition financing, restructurings, recapitalizations, bridge loans and other transactions, according to PSERS documents. Cerberus will target net returns in the 11 percent to 13 percent range.

PSERS also committed up to $200 million to Cerberus Institutional Partners VI, a private equity and distressed debt fund targeting $4 billion. The firm expects to hold a first close on between $1 billion and $2 billion at some point in the second quarter, according to a Portfolio Advisors memo included in PSERS’s meeting materials.

The pension has a strong history with Cerberus spanning seven funds and more than $1.3 billion of commitments, according to pension documents. Those commitments, which include private equity funds and lower yielding debt investments, netted a 17.5 percent internal rate of return and 1.7x multiple since inception.

Growth interest

In addition to its re-ups with Cerberus, PSERS committed $400 million to growth equity, venture capital and credit funds raised by Summit Partners and Sankaty Advisors (Bain Capital’s private debt platform) at its June 11 meeting.

The largest of those commitments (up to $250 million) went to Sankaty, which is targeting $3 billion for its sixth credit opportunities vehicle. PSERS has committed $2 billion to Bain- and Sankaty-managed vehicles since 2008. Those investments netted an 11 percent IRR and 1.3x multiple as of Dec. 31, according to pension documents.

PSERS allocated up to $100 million to Summit Partners Growth Equity Fund IX and up to $50 million to Summit Partners Venture Capital Fund IV, according to pension documents.

Summit is targeting $3 billion for its latest growth equity fund. Its venture capital fund has a $600 million target.

PSERS had a 16.3 percent allocation to private market funds as of Dec. 31, just short of its 17 percent target.