Rhode Island pension commits to Level Equity, underallocated to PE

  • Assets under management: $8.4 bln
  • PE allocation: 6.1 pct
  • PE target allocation: 11 pct
  • PE strategy: largely focused on buyouts
  • Whom to contact: Evan England (evan.england@treasury.ri.gov)
  • Why this is important: Rhode Island’s PE commitments are balanced between new relationships and re-ups

Rhode Island State Investment Council at its Aug. 22 board meeting committed a total of $50 million to two Level Equity funds.

Rhode Island SIC committed $35 million to Level Equity’s fourth fund, targeting $400 million, and $15 million to the firm’s opportunities fund targeting $100 million.

The opportunity pool will invest in portfolio companies of funds managed by Level Equity, including simultaneous co-investments, pension documents said.

This fund carries a fee of 1 percent of invested capital. Level Equity’s fourth fund is charging a 2.5 percent management fee on committed capital, documents said.

Level Equity invests in lower-middle-market growth opportunities in software, internet and media.

Founded in 1997 by Benjamin Levin, George McCulloch and Sarah Sommer, all previously with Insight Venture Partners, Level Equity has invested in 71 companies, 45 of which have been exited.

This is the third new private equity relationship for Rhode Island in 2018.

The other new commitments earlier in the year were €21 million ($24.2 million) to ECM German Equity Partners’ fifth fund and $25 million to Hastings Equity Partners’ fourth fund, documents show.

In all, the pension fund has committed $281 million across seven funds in 2018 to date, said Evan England, director of communications for Rhode Island SIC.

This year, Rhode Island SIC re-upped $40 million to Riverside Co’s fifth microcap fund, documents said. How much Riverside is targeting for microcap Fund V is unclear. Riverside’s fourth microcap fund raised $650 million in 2016.

Rhode Island SIC also re-upped $50 million to Paine Schwartz Partners’ fifth fund, which is targeting $1.2 billion, and $50 million to Baring PE Asia’s seventh fund, which is targeting $5.5 billion.

It also re-upped $30 million to Industry Ventures’ fifth hybrid fund of funds, which closed on $335 million in June.

The $8.4 billion pension system is underallocated to PE. It had an allocation of 6.1 percent compared with its target of 11 percent as of March 31, 2018.

Rhode Island SIC’s private equity portfolio consists of buyouts, direct lending, distressed debt, funds of funds, opportunistic credit, energy, secondary and venture capital.

Buyouts comprised more than 58 percent of the pension system’s PE portfolio, and the commitments were spread over 81 funds, as of March 31, 2018, documents said.

Buyouts generated an internal rate of return of 13.32 percent as of that date, documents said.

The PE portfolio returned 17.94 percent over one year, 12.56 percent over three years, and 12.31 percent over 5 years as of June 30, 2018, documents said.

Action Item: Read more on the pension system here https://bit.ly/2Lq3dEG