Wisconsin’s PE assets appreciated by $3.5 billion in 2021

SWIB recently expanded the range of its target for added flexibility.

State of Wisconsin Investment Board’s private equity holdings appreciated by an incredible amount in 2021, adding billions to the system’s investment AUM.

The rise in private equity holdings comes as many state pension funds come up against the top range of what they can allocate towards private equity. SWIB is one of those states, having recently expanded the range of its private equity allocations to avoid having to sell assets to rebalance.

According to a presentation led by the system’s private equity portfolio manager Scott Parrish, private equity distributions totaled $2.6 billion, up from $1.7 billion in 2020. SWIB also ended the year with $10.6 billion in private equity assets, an increase of 47.5 percent from the previous year and buoyed by strong returns in growth equity.

“In private equity, we’re cash flow positive. We’re getting capital back on top of seeing strong appreciation,” Parrish said.

SWIB spokesperson Vicki Hearing attributed the gain to the strong 2021 performance for public equity, which nearly returned 48 percent in 2021.

Overall, the private equity portfolio returned 47.5 percent last year, 22.7 percent over the past three years and 20.1 percent on a five-year basis.

Parrish said that by the end of next quarter, SWIB will have committed $1.8 billion in private equity funding for 2022.

While growth equity is only 8 percent of its private equity portfolio, Parrish noted this category’s five-year return of 34.7 percent.

“Growth equity has really been driven by software investments,” Parrish said.

An example of SWIB’s growth equity strategy comes via its $100 million commitment to PSG Encore, which has a portfolio comprising big data, cloud business, eCommerce, healthcare software-as-a-service, payments and cybersecurity companies.

According to the presentation, 26 percent of the overall private equity portfolio is dedicated to information technology. The Russell 2000 index, which SWIB uses as its benchmark, only contains 14 percent towards this sector.

Mid-sized buyouts comprise the largest share of SWIB’s private equity portfolio at 23 percent. It has earned a 22.7 percent five-year return, according to the presentation. Mega buyouts make up 16 percent of the portfolio and have a five-year return of 21.7 percent.

Large buyouts make up 12 percent of the portfolio and have returned 15.2 percent while small buyouts, with 11 percent of the portfolio, have booked 15.9 percent five-year returns.