Wisconsin adjusts co-investment program for post-covid market

State of Wisconsin Investment Board plans to co-invest in public company securities in the wake of the coronavirus crisis, according to changes to its investment guidelines approved by its board of trustees Wednesday.

The language allows the private equity co-investment portfolio to invest in public companies alongside its GPs by taking part in so-called PIPE deals, which stands for “private investment in public equity.” As companies become distressed, GPs can often provide financing faster than a public offering, as Buyouts has reported.

Wisconsin is permitted to use other public offerings as well, as long as investments in public company securities take up 10 percent or less of the co-investment portfolio’s total exposure.

This was not the only change. Wisconsin can now potentially take a controlling interest in a company, lifting the 50 percent cap on the amount of outstanding equity Wisconsin can hold. At least some of this additional equity will take the form of co-investments.

“As we seek to grow our co-investment exposure and our focus on smaller managers, this guideline has become outdated,” wrote chief legal counsel Sara Chandler in a letter to the board.

The guidelines were also changed to allow co-investments to be made in emerging markets, whereas before they were only permitted in “the US or other developed markets.”

Up to 20 percent of the co-investment portfolio can now be invested in companies in emerging markets. The amount of the overall PE portfolio that can be invested outside the US was raised from 33.3 percent to 45 percent.

“Given the current market environment, staff expects to see increased activity in developed and emerging markets leading to attractive opportunities,” Chandler wrote.

The guidelines also raise the amounts staff members can commit to funds. Staff can commit up to $150 million to a fund with a new manager and up to $50 million to a co-investment. For commitments to existing Wisconsin managers, the limit was doubled to $300 million for funds or strategic investments and $100 million for co-investments.

As of June 30, Wisconsin had just over $10 billion in assets under management in its private equity/debt asset class, making up 9.6 percent of its $111.5 billion in total assets under management in its core trust fund.

The asset class returned -2.75 percent over the first two quarters of 2020, which beat its benchmark. It returned 2.05 percent over one year, 10.38 percent over 10 years and 11.95 percent over 20 years.

Wisconsin did not respond to a request for comment for this story.

Action Item: read Wisconsin’s September 9 Board of Trustees meeting materials here.