Wisconsin bullish on small, mid-size buyouts

“(Our) house view is more bullish on small/mid buyouts and venture capital/growth equity in the U.S. This means we have been reducing large/mega exposure, adding small/mid exposure, increasing allocation to venture capital/growth equity, and increasing exposure to energy,” according to a quarterly investment update presented at its Aug. 13 meeting.

The second quarter commitments, spanning April to June, included allocations to mid-market funds such as Charlesbank Equity Fund VIII, New Capital Partners Private Equity Fund III and Lindsay Goldberg IV.

The board, which manages $105.1 billion in state assets, also disclosed commitments to CapVest Private Equity, EnCap Flatrock Midstream, Warburg Pincus’s energy fund and Patria Investimentos. Wisconsin also made a $20 million co-investment in an undisclosed consumer discretionary company during the second quarter.

In addition to increasing its exposure to small and mid-market funds, Wisconsin also has utilized the secondary market to unload some of its larger commitments. In July, trade publication Secondaries Investor reported that the board had sold stakes in funds managed by BC Partners, Charterhouse Capital Partners and 3i Group Plc.

June documents acquired by sister publication peHUB indicate that that recent secondary activity has been focused around the board’s legacy portfolio, which was valued at $203 million across 48 funds as of Dec. 31. Wisconsin plans to sell off the entire portfolio, with the exception of 14 Brinson Partners funds it transferred from its Multi-Asset Portfolio in 2012.

The board “has been taking advantage of attractive pricing in the secondary market to sell non-core GP relationships. (The board) recently sold a number of funds in the legacy portfolio and is selling more recent vintage year funds for proceeds at or above the most recent valuation,” according to the quarterly investment report.

Wisconsin completed a similar sale in 2012, when it sold $1 billion of its stakes in funds managed by The Blackstone Group, Kohlberg Kravis Roberts and The Carlyle Group, among others, spokeswoman Vicki Hearing told Buyouts at the time.

In addition to providing updates on its outlook for small and mid-market funds, the quarterly investment report also noted that the board has bearish view on Western Europe or pan-Europe funds, “noting that there are less attractive funds in the market in 2014.” Wisconsin is also slowly increasing exposure to Asian and Latin American strategies, according to the report.

Hearing did not immediately respond to follow-up questions about the report.

Wisconsin’s bullishness for small and mid-market funds echoes recent comments from Margot Wirth, the California State Teachers’ Retirement System director of private equity, who recently told Buyouts that CalSTRS is shifting its focus to “breakout groups”—fund managers with strong track records at the lower end of the buyout market.

The State of Wisconsin’s Core Trust Fund, which accounts for $90.7 billion of the $105.1 billion overseen by the Investment Board, had a 7.7 percent exposure to private equity and debt as of June 30, according to state documents. The portfolio had generated a five year return of 17.2 percent as of June 30.