Wisconsin cautiously eyes U.S., European credit

State of Wisconsin Investment Board is staying careful as it explores credit-related opportunities in the U.S. and Western Europe.

“SWIB is … being very selective in looking for U.S. and Western European credit managers that will opportunistically take advantage of market,” an investment report released by the $113 billion public pension says.

Within its private-debt portfolio, Wisconsin noted the potential to add “a modest level” of exposure to mezzanine through loans with well-established private companies, according to a report prepared by Wisconsin staff.

There are some concerns, however, relating to “recent trends of weak documents/structures getting done,” the staff report says. A recent report from Reuters, citing Moody’s, found that the preponderance of weaker covenants and loan documentation could cause default rates to double in the event of another downturn.

“The last default cycle wasn’t bad for the leveraged-loan market, but the market’s changed,” Christina Padgett, Moody’s head of leveraged finance, told Reuters. “Protections are weaker, deals are more aggressive and we anticipate that the default cycle could be worse as credit quality is lower.”

Consistent with previous presentations, Wisconsin reported its ongoing interest in PE opportunities in the small and mid-market funds and co-investments.

Wisconsin committed $264.3 million to private equity funds and co-investments in Q3, a summary of its investment activity shows. The largest commitment, $100 million, went to GTCR’s latest $5.25 billion buyout fund.

The public pension allocated $50 million each to LightBay Capital’s debut fund, targeting $450 million, and a credit fund managed by Sterling Group, targeting $200 million to $250 million. Wisconsin secured a $53 million allocation to Waterland Private Equity Investments’ seventh flagship fund, which recently held a final close on 2 billion euros ($2.37 billion).

Wisconsin also committed $11.3 million across three co-investments.

Wisconsin’s $97 billion core trust fund valued its PE and debt portfolio at $8.1 billion as of Sept. 30. The portfolio delivered an annualized return of 15.24 percent for the period ending Sept. 30, making it the largest contributor Wisconsin’s overall return of 12.09 percent.

SWIB declined comment.

Action Item: For more on Wisconsin, visit www.swib.state.wi.us