PSERS Plows $700 Million Into Four PE Funds

Pension: Pennsylvania Public School Employees’ Retirement System

Assets Managed: $47.9 Billion (Dec. 31, 2011)

Private Investments: $9.7 Billion (Dec. 31, 2011)

Private Equity: $7.2 Billion

Private Investment Allocation: 20.4%

Private Investment Allocation Target: 20.5%

Chief Investment Officer: Alan Van Noord

The Pennsylvania Public School Employees’ Retirement System, with $48 billion in assets, has plunged deeper into the private equity pool, pledging $700 million across four funds, according to a PSERS spokeswoman.

Overall, PSERS has $9.7 billion in private equity, private debt and venture investments, which translates to a 20.4 percent allocation, as of Dec. 31, 2011. Of that amount, $7.2 billion, or 15.1 percent, was in pure private equity.

The four funds that received the latest pledges are from The Carlyle Group, Apollo Global Management, Cerberus Capital Management and Partners Group.

The pension pledged $200 million to the Apollo European Principal Fund II LP, a fund investing in non-performing loans that seeks to take advantage of the recent financial turmoil in Europe. The fund seeks to raise up to $3.3 billion. According to a PSERS presentation, the Apollo fund will mainly target loans in the U.K., Germany, and Spain, but will “opportunistically look to make investments in other European jurisdictions including Portugal, Ireland, Italy, and the Netherlands.”

The firm’s previous fund in the series closed in 2010 having raised $1.9 billion. PSERS has a long history of investing in Apollo’s funds, committed more than $500 million to four other funds at the firm. Publicly listed Apollo has more than $75 billion under management.

PSERS pledged $200 million to the Carlyle Energy Mezzanine Opportunities Fund LP.  According to a PSERS presentation, the fund will invest primarily in the “debt investments in energy and power projects and companies located primarily in the U.S. and Canada.”

The pension has invested more than $1 billion across five previous Carlyle funds, mostly for real estate investments. Carlyle, which is considering going public, has $148 billion in assets under management.

Cerberus Institutional Partners V LP also received a $200 million check. The fund, which is seeking to raise $3.75 billion, is just half the size of the firm’s previous flagship fund, the 2006 vintage Fund IV, which raised $7.5 billion. The firm is perhaps best known for its failed attempt to revive the struggling Chrysler car company.

According to the PSERS presentation, the fund will invest in distressed private equity, including operational turnarounds, as well as distressed assets, including distressed debt and mortgages. Investments will include European non-performing loans, but a majority of investments will be in North America.

Interestingly, the March 8 presentation, highlighted as a “GP ‘Value Add’” was the fact that the fund will be operationally led, in part, by Robert Nardelli, the former head of Home Depot, and the person that Cerberus brought in to try to turn Chrysler around. Nardelli quit Cerberus on March 9, just one day after the presentation.

This is Cerberus’s fifth commitment from PSERS, which has pledged $900 million to the firm since 2001. The previous fund in the series, the 2006 vintage Fund IV, has returned a 6.4 percent IRR and a 1.25x return multiple, as of Sept. 30, 2011, according to PSERS.

Finally, PSERS committed $100 million to Partners Group Secondary 2011 LP, the firm’s fifth secondary vehicle, which is seeking to raise as much as $2.6 billion. Partners Group is based in Zug, Switzerland.

PSERS invested roughly $200 million with the Partners Group’s 2008 secondary fund, a fund that has performed extremely well, returning a 25 percent IRR and a 1.5x return multiple, according to PSERS data.