Vermont commits $150 mln to PE, adds Siguler Guff as second GP

  • Why is this important: State added Siguler Guff as second GP; April PE pledges are all for the year
  • AUM: $4.4 bln
  • PE target exposure up to 10 pct from 2 pct
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Vermont Pension Investment Committee at its April meeting committed $150 million to two private equity funds, deepening its relationship with HarbourVest and adding a second GP to its portfolio.

The $4.4 billion pension plan is a relatively recent investor in PE, and HarbourVest has been its only GP since it began investing in the asset class. It plans to jump its exposure to PE to 10 percent allocation from its current 2 percent but notes it won’t get there overnight.

Vermont took a step toward growing the program at its recent investment meeting, committing $100 million to HarbourVest Dover Street Fund X, a secondaries fund with a $5.75 billion target, and Siguler Guff’s Small Buyout Opportunities Fund IV. Siguler Guff is the state’s new partnership.

The April commitments represent all of Vermont’s planned commitments for the year, CIO Eric Henry said.

The investment committee also debated the use of credit lines to delay capital calls, with one board member questioning HarbourVest.

He said HarbourVest appeared to be making significant commitments in the Dover funds with credit, rather than calling investors’ capital, which could manipulate the timeline for reporting IRR and add “hidden leverage” to LPs’ balance sheets.

HarbourVest said it used the credit primarily to manage capital calls, so it wasn’t coming back and asking investors for money in “dribs and drabs.”

Vermont’s investment staff is comfortable with the way HarbourVest uses leverage early in a fund’s life, Henry said.

“Different funds use leverage in different ways,” Henry told Buyouts. “We address it as part of the discussion of any individual manager’s strategy.”

HarbourVest’s management fee for Dover Street Fund X begins at 1 percent and declines over time, for an average fee of 0.75 percent.

HarbourVest also offers a fee break of 5 basis points for early investors, as well as a 5-basis-point fee break for investors who commit more than $100 million, both of which will apply to Vermont.

Vermont is also trying to build up its other private-markets asset classes, and at the meeting it approved pacing plans for non-core real estate and private debt.

In real estate, which has an 8 percent target allocation, Vermont plans to diversify its non-core investments into value-add opportunities, with a $30 million commitment later this year. It will make another commitment of $45 million in 2021 and it may choose a value-add or opportunistic strategy at that time.

For private debt, which has a 5 percent allocation target, Vermont plans to commit $75 million in 2019 and another $75 million in 2020.

Benefit Street Partners, which already manages a private-debt allocation for the pension, is likely to get a recommendation for a new commitment this year.

Action Item: Check out Vermont’s latest annual comprehensive financial report here