Pennsylvania State Employees’ Retirement System (PA SERS) has announced a new strategic plan for its private equity investments over the coming year, which places a large emphasis on existing managers in its portfolio.
Recently, PA SERS re-upped with AXA Private Equity and made a $75mn commitment to its fifth secondaries fund, AXA Secondary Fund V. PA SERS was an investor in its two predecessor funds, having committed $80mn to AXA Secondary Fund IV and $26mn to AXA Secondary Fund III. It also made a commitment of $50mn to Asia Alternatives Capital Partners III, the third offering from fund of funds manager Asia Alternatives Management. The pension fund committed $50mn in capital to the two previous vehicles raised by the fund of funds manager, Asia Alternatives Capital Partners II and Asia Alternatives Capital Partners I.
PA SERS plans to limit its total new fund commitments to $500mn annually but make larger commitments to more strategic relationships. Rather than forming new GP relationships, it will mostly re-up with the highest performing existing managers in its portfolio. Within five years PA SERS plans to cut its current number of 149 GP relationships down to between 60 and 90 relationships, reducing this further to between 40 and 50 within 10 years.
PA SERS also plans to broaden its geographical focus by decreasing its emphasis on North America-focused funds and increasing its allocation to international opportunities. Furthermore, the pension fund expects to increase its exposure to buyout funds, which currently comprise 60.3% of its private equity portfolio, to 65%. Additional plans include increasing its allocation to special situations funds from 22.3% to 25% of its private equity allocation and decreasing its exposure to venture funds from 17.5% to 10%.Finally, in order to gain exposure to niche markets and strategies and reduce fees and operational costs, PA SERS will also look to create customised separate account programs.
PA SERS currently has assets under management of $24.2bn, with 27% currently allocated to private equity. It plans to reduce this to 21% within the next five years, and in the longer term it plans to cut this figure further to 14% of total assets.
Preqin currently tracks 494 public pension funds globally that invest in private equity, and PA SERS currently ranks as the 16th largest based on its current allocation to private equity. California Public Employees’ Retirement System (CalPERS) currently has the largest allocation to the asset class, which stands at $32bn.