SERS Shrinks Big Fund Commitments

The $35 billion Pennsylvania State Employees’ Retirement System made some big commitments earlier this month, but they were noticeably smaller than they’ve been in recent years. That marks a continuing trend for Pennsylvania’s second largest pension.

The trend isn’t surprising, considering that as of last September, 15 percent of the pension’s investments were in private equity, which is 1 percent above its target allocation to the sector. “As our existing funds are maturing and paying out, we are investing to maintain our allocation level and our relationships with good managers,” said Pamela Hile, a spokeswoman for PA SERS. “It’s simply a matter of how much money we have available to invest within that asset class.”

The pension has just committed $40 million to Sankaty Credit Opportunities IV LP, a fund earmarked for mezzanine and high-yield debt opportunities, managed by a Bain Capital affiliate; $50 million to megafund TPG Partners VI LP; and $15 million to the early-stage venture capital fund Lightspeed Venture Partners VIII LP.

SERS has previously committed to all three firms. But while all three are seeking to amass funds larger than their predecessors, the limited partner scaled back its commitments to each.

Compare SERS’s commitments to these firms the last time each came to market. The pension committed $18 million to Lightspeed Venture Partners VII LP, which closed in 2005 with $500 million in commitments: This time, the venture capital firm is looking to raise $675 million. Similarly, SERS committed $100 million to TPG Partners V LP, which closed with $14 billion in 2006. TPG is targeting $20 billion for its newest fund. And the LP committed $50 million to Sankaty Credit Opportunities III LP, a $2.2 billion vehicle. Boston-based Sankaty Advisors is seeking to double the size of its predecessor fund.

In a similar move last month, the pension committed $50 million to Madison Dearborn Partners IV LP, one-third less than it committed to the Chicago firm’s last fund.

In 2007, the pension fund enjoyed a 41 percent return net of fees on its private equity investments.

Other recent SERS investments include energy-focused buyout fund Lime Rock Partners V LP, which recently closed on $1.4 billion, and CVC Capital Partners’s Asia Pacific III Fund LP, which invests in developed Asia-Pacific regions such as Australia, Hong Kong, and Singapore. The fund just closed with $4.1 billion, roughly twice the size of its 2005 predecessor.—C.L.