Private Markets / Insights

CalPERS was the most active allocator to private equity in Q3 2023 with $5.5 billion in reported commitments, more than double the $2.7 billion commitment total reported by CalSTRS. Both plans reported over 20 private equity allocations in the quarter. Despite this, the two plans did not invest in any of the same funds and only had two fund managers in common, Apollo and Bain Capital Private Equity. The single largest allocation reported by CalPERS was $750 million to Silver Lake Partners VI while the largest for CalSTRS was $350 million to CD&R Fund XII.

New York State Common Retirement Fund (NYSCRF) ($1.2 billion) and Virginia Retirement System (VRS) ($1.1 billion) were the only other plans to report over $1.0 billion in commitments in Q3, however with significantly fewer individual commitments than their California-based peers. Both plans allocated to CVC Capital Partners IX, which was the most popular destination for public pension plan commitments in the quarter.

In addition to NYSCRF and VRS, Maryland SRPS, Sacramento County ERS, State of Michigan RS, and Wisconsin Investment Board all reported commitments to CVC Capital Partners IX for a total of $1.1 billion.

New York City ERS (NYCERS) was also active in the third quarter with 14 reported allocations totaling $886 million. The pension plan allocated to eight different direct funds and complemented six of those with co-investment commitments. Approximately 1 in 5 pension plans who reported a commitment in Q3 2023 allocated to a co-investment vehicle.

Illinois Teachers, Texas Muni, New Mexico ERB, New Mexico SIC, San Joaquin Couty ERA, and University of Michigan all reported at least one allocation to a fund I highlighting that opportunities exist for emerging managers seeking to raise capital from public plans.

According to Nasdaq eVestment™’s Forward Calendar 308 private equity funds are confirmed or projected to be in the market fundraising for a first close in 2024. In terms of strategy, venture capital funds represent the largest portion coming to market with 149 confirmed and projected funds. These VC funds are targeting an average fund size of $344 million. Following venture capital, buyout represents the second largest strategy cohort coming to market, with 78 funds targeting a $2.1 billion average fund size. These funds represent 49.1% of all private capital sought from investors in the coming year.

The most read private equity document in the third quarter of was the Quarterly Monitoring Report for StepStone Atlantic Fund, LP, a fund that makes private equity and infrastructure investments on behalf of San Diego City Employees’ Retirement System (SDCERS). Since making its first investment in August 2009, the private equity component of the fund has delivered a net IRR of 17.4% and a net TVPI of 1.96x for SDCERS. StepStone makes primary, secondary, and co-investment investments for SDCERS, and the report offers a detailed breakdown of the fund’s portfolio.

A pitch deck for HarbourVest Dover Street Fund XI presented to Anna Arundel County Retirement and Pension System was also well read in Q3 2023. One of the key points made in the presentation is the growth of secondaries in recent years and the factors that make the market an attractive one. The deck notes that transaction volume exceeded $100 billion in both 2021 and 2022 and that there are “high quality assets, particularly in GP-led deals.” HarbourVest is seeking $12 billion for Dover Street XI and the fund will focus primarily on buyout opportunities (70-85%) as well as growth equity/venture (10-20%) and opportunistic (0-15%).

Another widely reviewed pitch deck was that of Warburg Pincus Capital Solutions Founders Fund presented to Louisiana Teachers. The presentation highlights “inflation, recession, and instability” as a “triple threat” driving deal flow for a capital solutions strategy. According to the deck, the fund will have a “fluid investment approach through-the-cycle and across the capital structure to facilitate growth

and corporate transformation,” and target 15-18% gross IRR with structured downside protection.

In Q3 2023, Maryland SRPS was the most active pension plan allocator to private debt in terms of number of commitments reported with seven. Commitments from the pension plan ranged in size from $30 million to $150 million. Maryland SRPS allocated a combined $200 million to Hayfin Healthcare Opportunities Fund and a related co-investment fund, a new relationship for the pension plan and their largest outlay to any one manager reported in the quarter. The pension plan also reported a $150 million commitment to Gramercy Capital Solutions Fund III, another new relationship for the plan.

Illinois Muni was also active in the quarter with six reported commitments totaling nearly $430 million. The plan’s largest reported commitment was $125 million to a direct lending SMA managed by Jefferies Asset Management. Illinois Muni highlighted in their investment memo that several private debt commitments from the quarter went to minority-owned fund managers, including $75 million to MC Credit Partners.  

CalPERS and New Jersey Division of Investment each reported $1.0 billion allocations to customized credit vehicles in the quarter. CalPERS allocated to a credit strategy from Oak Hill Advisors while New Jersey Division of Investment allocated to a credit strategy from Goldman Sachs Asset Management.

Ares Management continues to be a top destination for private debt allocations from public pension plans as eight reported commitments to the fund manager in the third quarter. Kern County ERA, New Hampshire Retirement System, Orange County ERS, and Texas County each reported allocations to Ares Pathfinder Fund II while CalPERS reported a $500 million allocation to Ares Senior Credit Investment Partnership. In total, pension plans reported $960 million in commitments to Ares in Q3 2023.

According to Nasdaq eVestment’s Forward Calendar 62 private debt funds are confirmed or projected to be in the market fundraising for a first close in 2024. In total these funds are seeking to raise over $48 billion from investors. There are 27 confirmed and projected direct lending funds that will be in the market targeting a median fund of $562 million. After direct lending, mezzanine strategies are the most common prevalent strategy raising capital at a median fund size of $470 million.

The top private debt document in the third quarter was an investor presentation made to Alameda-Contra Costa Transit District Retirement System (AC Transit) for Ares Capital Europe VI, a €15 billion pan-European direct lending strategy. In their discussion of the current market opportunity for private credit in Europe, Ares highlights the 36% decline in the number of European banks from 2008 to 2021 as a key factor contributing to the increase in European direct lending transaction volume. Ares also highlights their ESG credentials in presentation, noting that the firm serves as the chair of the UNPRI Private Debt Advisory Committee and has committed €6.2 billion to Sustainability Linked Loans as of March 31, 2023.

A Private Credit Educational Overview by consultant Meketa was widely viewed by Market Lens users in Q3. The presentation offers the consultant’s views on private credit and focuses on the growth of the asset class in recent years, projecting $2.7 trillion in global private credit AUM by 2026. Meketa notes that despite this rapid growth, dry powder levels have remained consistent for private credit managers suggesting that are not facing the same challenges as private equity managers in terms of capital deployment.

Another popular slide deck was the HPS Specialty Direct Lending presentation for New Mexico SIC. With their specialty direct lending strategy, HPS is targeting large borrowers in the non-sponsor segment of the market which has fewer competitors. According to HPS, “[the] ability to operate in less ‘crowded’ areas of the direct lending market is an advantage.” The deck also explores the growth of so-called “megatranche” loans of $1 billion or greater, noting that, “Companies seeking megatranche loans are larger/more defensible than standard mid-market LBO candidates, but often have nearly identical loan pricing.”

New Mexico SIC was the most active allocator to real estate in Q3 2023 in terms of number of commitments made with five. The pension plan allocated to a range of real estate strategies including data centers ($150 million to IPI Data Center Partners Fund III and a related co-investment vehicle) and industrial outdoor storage ($125 million to Alterra IOS Venture III and a related co-investment vehicle). Ohio Police & Fire Pension Fund also reported a $75 million allocation to the Alterra fund in the quarter.

By far, the largest real estate allocation reported in the quarter was $1.5 billion to Blackstone Real Estate Debt Strategies V from CalPERS. The California giant also reported a $350 million allocation to Mesa West Real Estate Income Fund V.

Blackstone was one of the top destinations for capital from pension plans as four others allocated a total of $452 million to Blackstone Real Estate Partners Europe VII in the quarter: Minnesota State Board, NYCERS, NYC Police, and NYC Teachers.

Brookfield Strategic Real Estate Partners V also saw four reported commitments totaling $675 million in the quarter. Pennsylvania Public Schools ($300 million) and Minnesota State Board ($200 million) accounted for a majority of that capital.

After CalPERS, the second largest commitment reported by a pension plan in the quarter was $413 million from North Dakota University and School Lands to IDR Investment Management. The pension plan will fund the new commitment in part by redeeming from UBS Trumbull after losing conviction in the manager.

According to Nasdaq eVestment’s Forward Calendar 56 real estate funds are confirmed or projected to be in the market fundraising for a first close in 2024. In total these funds are seeking to raise more than $64 billion from investors. Eleven real estate funds are targeting fund sizes over $1.0 billion and the median target fund size of the entire cohort is $516 million.

The Real Estate Strategy Semi-Annual Report prepared by consultant RCLCO Fund Advisors for CalSTRS was the most viewed real estate document in Q3 2023 among Market Lens users. Highlighted prominently in the report is the portfolio’s outperformance over a 10-year time horizon. As of Q1 2023, the CalSTRS real estate portfolio has generated a net TWR of 9.8%, outperforming the ODCE benchmark by approximately 130 bps. The $50 billion portfolio represents 15.8% of total assets for CalSTRS, marginally over the pension plan’s 15% real estate target allocation. The report also features detailed outlooks from RCLCO on key real estate sectors. RCLCO is bullish on industrials in 2024 and on multifamily in the long-term.

A presentation from Bain Capital Real Estate to Louisiana Teachers was another widely read document. The $7.4 billion real estate platform formally incepted in 2018 is one of the newest verticals for Bain Capital and focuses on a “value add-plus” strategy. While the strategy will target several conventional segments of real estate like industrial, medical, and self-storage, it will also target novel segments like “media/content space.” Bain’s thesis is driven by, “frictional vacancy levels and exceptionally low supply growth" in Los Angeles and New York and will focus on delivering state-of-the-art studio and creative spaces in these two markets.

Meketa’s Real Estate Market Overview for San Diego City ERS was also popular in the month. The overview provides an update on the pension plan’s real estate portfolio through 2023 and its plan for 2024. In 2024 San Diego City ERS will work to reduce its overall exposure to real estate from 11.7% to its 11% target allocation and seek to increase exposure to multifamily. The pension plan will allocate $100 million to new non-core investments and reallocate a further $100 million from core debt to core plus.

Maryland SRPS was the most active pension plan allocator to real assets in the third quarter with four commitments totaling $750 million. The largest allocation of $300 million went to Brookfield Infrastructure Partners V and the pension plan made first time commitments to Stonepeak Infrastructure Partners ($150 million) and Global Infrastructure Partners ($200 million). Rounding out Maryland SRPS’ reported commitments was Taurus Mining Royalty Fund which saw an allocation of $100 million.

NYCERS joined Maryland SRPS in reporting a $162 million commitment to Global Infrastructure Partners in the quarter. The plan also allocated $176 million to Ardian Infrastructure Fund VI and $162 million to EQT Infrastructure Partners V.

Fairfax County Educational was also active in the quarter with four reported commitments albeit at much smaller check sizes. The plan’s largest reported allocation was $14 million to Ridgewood Energy Oil & Gas Fund V while their smallest was $3.3 million to Grain Communications Opportunity Fund IV.

The largest real assets allocation reported in the quarter was $750 million from CalPERS to Brookfield Infrastructure Fund V.

According to Nasdaq eVestment’s Forward Calendar 34 real assets funds are confirmed or projected to be in the market fundraising for a first close in 2024. In total these funds are seeking to raise over $62 billion from investors. The 16 infrastructure strategies targeting a first close represent a vast majority of this total and are seeking an average fund size of $3.2 billion.

The top real assets document in the third quarter was a Real Assets Update for San Francisco ERS. As of December 31, 2022, the pension plan had a 15.9% allocation to real assets against a target of 10%. While the portfolio has underperformed significantly in the short term, it had outperformed over 5-, 10-, and 20-year time horizons. Over the next three years, San Francisco ERS will target $650 million of annual capital deployment to real assets. In infrastructure, the pension plan will target opportunities in digital infrastrucure and energy transition while in natural resources they will target agribusiness and metals & mining.

The most reviewed real assets presentation deck in the quarter was that of Carlyle Renewable and Sustainable Energy Fund II, presented to Boston Retirement System. The fund is part of Carlyle’s $57 billion global real assets platform, but the deck emphasizes the firm’s deep connection to Massachusetts, highlighting that Carlyle has invested $2.9 billion across 52 investments headquartered in the state. The fund is seeking to raise $2 billion to make 10 – 15 investments in value-add renewable and energy transition opportunities. As of March 31, 2023, Carlyle Renewable and Sustainable Energy Fund I had generated a 10.4% net IRR and a 1.11x net MOIC.