Washington State Pledges $1.3B to PE, Infrastructure Funds

Like many big pensions, Washington has been moving larger amounts of money to fewer managers to further concentrate its portfolio and more effectively “move the needle” with the investments it does make.

Historically, Washington has been one of the most active private equity investors since the founding of the leveraged buyout industry. The state was among the first to invest in (and benefit from) the early funds being offered by Kohlberg Kravis Roberts & Co., Welsh, Carson, Anderson & Stowe; and Clayton, Dubilier & Rice.

Currently, the state’s main pension fund, the $62 billion Comingled Trust Fund, has $16 billion, or 26 percent, of its assets in invested private equity capital. That is 1 percentage point above the fund’s 25 percent target, one of the highest allocations among U.S. public pension funds.

The biggest commitment in the latest round was a $400 million pledge to the latest flagship fund from Silver Lake Partners, Silver Lake Partners IV LP, which is seeking to raise $7.5 billion. Washington has been a consistent investor with Silver Lake, having committed to all three of the firm’s previous funds, including $250 million to the firm’s last fund, the 2007-vintage Silver Lake Partners III LP, which has so far generated a 1.4x return multiple and a 20 percent net IRR, according to Washington return data from March 31, 2012.

Other pensions to have invested in Fund IV include the New York State Teachers’ Retirement System, which committed $200 million and the Minnesota State Board of Investment, which has pledged $100 million.

Washington also committed $258 million to the latest fund from Triton Partners, Triton Fund IV LP, which is seeking to raise $2.5 billion and concentrate on mid-market buyouts in Scandinavia, as well as Germany, Switzerland and Austria. The pension committed $206 million to Triton Fund III LP, a 2009-vintage fund that has so far delivered a 1.1x return multiple and a 9 percent net IRR, based on the same Washington data from March 2012.

The final private equity fund receiving a commitment from Washington was Roark Capital Partners III LP, the latest fund from Roark Capital Group, an Atlanta-based firm that buys franchise-related firms, particularly restaurants, such as Auntie Anne’s Pretzels, Corner Bakery Café and Arby’s Restaurants. The $150 million commitment is Washington’s first with Roark.  

Other investors in Fund III include the New Jersey Division of Investment, which committed $100 million, the Louisiana Teachers’ Retirement System, which pledged $50 million and the University of Michigan Endowment Fund, which committed $20 million.

Roark’s previous fund, the 2008-vintage Fund II, was generating a 1.5x return multiple and a 24 percent net IRR, according to Fund III’s private placement memorandum, a copy of which was obtained by Buyouts.

Washington also committed $500 million to its infrastructure portfolio, split evenly between two funds, Global Infrastructure Partners Fund II LP and Stonepeak Infrastructure Fund LP.  

Global Infrastructure Partners has been on a fundraising tear with its latest fund, which has already raised $7.5 billion, well above the fund’s initial $6 billion target. The fund is riding the enthusiasm of pensions and other investors for long-term assets that are less correlated to inflation and the economic cycle. The firm is known for owning assets such as London’s Gatwick Airport and the pipeline business that used to be owned by Chesapeake Energy.

So far, the fund has won commitments from the California Public Employees Retirement System, which pledged $250 million, the Virginia Retirement System, which committed $150 million, the Oregon Investment Council, which committed $150 million and the New Mexico State Investment Council, which pledged $75 million. No return data was available for the firm’s debut fund.

The final $250 million pledge was to the debut fund from Stonepeak Partners, which had been The Blackstone Group’s infrastrcuture unit, but was spun out. Stonepeak’s debut fund is looking to raise $1 billion. Besides Washington, the New Mexico Educational Retirement Board has committed $40 million to the fund.