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Wisconsin considers hiking private equity allocation

The pension's consultant says the transition could be done as soon as the end of next year.

State of Wisconsin Investment Board is considering raising its private equity and debt target from 9 percent to 11 percent.

As of June 30, the fund had a 9.5 percent PE allocation. The fund could get the allocation to 11 percent by the end of 2021, depending on the pace of capital calls and what happens in the public markets, said Chris Levell, partner at NEPC, Wisconsin’s investment consultant.

The change was recommended Tuesday by NEPC.

The decision was based on the fund being overweight in private equity, as well as a consideration of commitments that are already in the pipeline, Levell said.

Wisconsin made $1.06 billion in private equity and private debt investments in Q2, according to sister title Private Equity International. It committed almost $900 billion in Q1, as Buyouts reported.

Levell said private equity and private debt have “a higher forward-looking expected return” than other asset classes going forward.

“We need to recognize there’s some asset classes that it’s easier to get alpha in, or that you’ve been more successful at getting alpha in, than others, and so that’s a part of this recommendation as well,” he said.

Wisconsin’s total asset allocation across all strategies adds up to 110 percent, as it raises its allocation through the use of leverage.

The new total asset allocation would add up to 115 percent, which would include the increase to private equity and debt, along with increases to public equity, public fixed income and inflation sensitive assets.

The changes to the portfolio would raise the 10-year expected return of the core trust fund to 6 percent, and the 30-year expected return to 6.6 percent, NEPC said. As of August 31, the core fund was valued at $112.1 billion.

The Wisconsin board will make a final decision on its new asset allocation in December.

Action Item: read NEPC’s October 20 asset allocation presentation to Wisconsin here.