Rhode Island plots next five years for PE portfolio

  • $7.5 bln pension increases allocation to 12 pct
  • Rhode Island to commit as much as $300 mln per year
  • PE portfolio netting 13.2 pct IRR

Rhode Island’s State Investment Commission recently shed light on how it plans to expand its private equity allocation to 12 percent over the next five years. The commission, which oversees Rhode Island’s $7.5 billion public pension, voted to increase its target allocation to PE from 7 percent of assets in September.

Rhode Island expects to commit $210 million to $300 million a year through 2021, according to projections prepared by advisory firm Cliffwater. Rhode Island typically committed around $116 million to PE per year over the previous five years.

Rhode Island will allocate to five to 10 private equity funds per year, with commitment sizes ranging from $20 million to $60 million, the report says. Between 40 percent and 60 percent of the commitments will go to U.S. buyout funds, with the rest going to venture capital funds. As much as 40 percent of the fund commitments will go to non-U.S. strategies.

Rhode Island’s decision to ramp up its allocation to PE, and U.S. buyouts in particular, emerged as prices for new portfolio companies remains high across a variety of strategies and geographies. While U.S. mid-market and small-market buyouts offer cheaper assets, “investment pace remains slow [and] distributions are expected to be muted for the next five years,” according to Cliffwater’s report.

The Cliffwater report also notes the PE portfolio’s outperformance of public indexes. Rhode Island’s private equity holdings have delivered a 13.2 percent internal rate of return since inception. “That’s why we’re taking a five-year, staggered approach,” said Rhode Island spokesman Evan England. “It’s definitely overheated right now.”

Rhode Island launched its private equity program in 1982 and went on to commit $2.1 billion to the asset class. The portfolio is currently valued at $536 million, according to state pension documents.

Rhode Island is a limited partner in 82 active funds. Its five largest relationships, in terms of overall exposure, are with Nautic PartnersCenterbridge Capital PartnersIndustry VenturesNordic Capital and Rhode-Island-headquartered Providence Equity Partners.

Action Item: To learn more about Rhode Island’s PE program, visit http://investments.treasury.ri.gov/