S.C. Commits $750M To Apollo, To Review Target

The South Carolina Retirement System Investment Commission recently committed $750 million to Apollo Management as part of a customized program that it expects to concentrate on debt investing. The state also said it plans to revisit its 6 percent target allocation to private equity.

The money is earmarked for “a variety of products within Apollo,” said Hilary Wiek, director of public and private equities. “We are trying to be opportunistic, so the exact allocation is not set up front, but there will be a lot of debt.”

In recent meeting notes, Robert Borden, chief information officer for the state, said Apollo Management has suggested allocating the assets to a capital markets fund and to a buyout/distressed private equity fund, although it was not clear if these are existing funds or vehicles to be created. Borden also said that “Apollo’s ability to work on a local level in locations with distressed debt contributed to its performance return success,” and added that Apollo Management would also contribute “significant capital” to the fund.

The state is one of the first plan sponsors to pursue a model of getting customized investment management services from buyout shops. Earlier this year, it committed $1.5 billion to a similar relationship with Goldman Sachs and $750 million to D. E. Shaw, whose mandate with the state includes absolute return, direct capital, private equity, real estate, long-only and 130/30 opportunities.

The pension fund has a target allocation to private equity of 6 percent, but it expects to revisit that goal in December, according to Wiek. South Carolina is a recent entrant to the asset class, having only received permission to commit to alternative investments in late 2006. The limited partner will likely take at least four more years to reach the target.

The core part of the program consists of funds of funds that will create geographic diversification and exposure to a wide variety of strategies. To fill out gaps in strategies, the LP will commit directly to funds with what it calls “satellite strategies.” To jump start the new program, the LP chose to commit to funds that avoid the J-curve, such as mezzanine debt, secondary and distressed debt funds, rather than buyout and venture funds.

The LP, which has an investment portfolio of $29 billion, recently committed to Welsh, Carson, Anderson, & Stowe Fund XI with $50 million; and Sankaty Advisors Sankaty Credit Opportunities IV ($200 million). Sankaty Advisors is an affiliate of Bain Capital.