by Andrés Ramos, Content Marketing Specialist – eVestment Private Markets
The beginning of April marked the end of 1Q 2020 and with it, the release of quarter-end documents on Market Lens, documents that offer insight into how performance for public pension plan investors has been impacted by the coronavirus pandemic. While understanding the pandemic’s impact is on performance is important, the true value of these quarter-end documents is the visibility they provide into how plans are reacting and responding to the pandemic.
Through the month of April we have been closely tracking and reviewing the plan documents posted to Market Lens and have identified several interesting trends from public plan investors.
Just as the pandemic has slowed IPOs and M&A activity in the public markets, LPs are also feeling the effects of reduced liquidity in the private markets. For Dallas Police and Fire, “Liquidation of private market assets remains the top focus, however, significant delays are expected due to COVID-19 market disruption.”
While RFPs and manager searches continue in virtual formats, they have also been plagued by delays and workarounds. For Stanislaus County ERA the pandemic has delayed their search for a general investment consultant by over a month and eliminated their requirement for paper copies of presentation materials.
Investment Boards move to be more nimble
Delays were to be expected as investment teams adapt to new workflows and remote team set-ups, but some public plans are combating this latency by adapting their investment processes. The investment boards of several plans have voted to give their investment committees the discretion to make commitments without prior board approval.
In issuing their COVID-19 Investment Authority Policy, which gave authority to their Investment Staff to make investment decisions on behalf of Fund, Fort Worth City ERF noted, “the importance of being able to respond quickly to investment conditions and opportunities that may arise as a result of the current status of the market.”
The Investment Staff of Alameda County ERA (ACERA) already had the authority to make commitments of up to $25 million, but in response to the pandemic, the Board moved to triple this figure to $75 million. The rationale for ACERA was the desire to access compelling deals with short windows of opportunity:
When faced with a highly volatile market, devalued equities, and businesses that could be struggling to continue, there may be deals available to ACERA that offer significant value. However, some of these deals may not be available for long, and authority to act quickly could be essential. The Investment team, in consultation with Verus, are in support of providing additional temporary authority to staff to approve certain investment proposals.
Interest in credit opportunities
So where are investors looking for opportunities? All signs point to credit funds. As many cash strapped, but otherwise healthy, companies have been devastated by lockdown orders and economic closings, some GPs have launched new private credit funds to finance and support these companies.
In an April 15th meeting with their consultant Asset Consulting Group, pension plan Oklahoma Police discussed an investment in Apollo Accord Fund III B, an interim credit dislocation fund that, “intends to pursue opportunities created by the liquidity-driven market dislocations caused by the spread of COVID-19.“ Worth noting is that Oklahoma Police is diligencing the “B fund” because the Apollo Accord Fund III has already been fully deployed. The “B fund” is targeting $500 million to $1 billion with a first closing on April 26, 2020. The sheer size and speed that these funds are operating at indicates the how extensive the demand is, both from LP investors and the companies seeking loans.
Similarly, in a meeting on April 22nd, consultant RVK highlighted KKR Dislocation Opportunities Fund as its “best idea” fund for Santa Barbara County ERS, stating that the fund is, “a compelling, shorter-term investment opportunity (five-year investment horizon), offered by a high quality firm with deep resources focused on credit analysis.”
Plan supports their home state
Lastly, in what is perhaps the “feel-good” story of the month, on April 7th New Mexico SIC Permanent announced a commitment of up to $100 million to the New Mexico Recovery Fund. According to the plan’s documents:
The purpose of the New Mexico Recover Fund is to provide differential rate loans to a broad range of New Mexico businesses directly affected by COVID-19 and that were otherwise creditworthy prior to the pandemic. These differential rate loans would be structured to provide liquidity to New Mexico businesses, allowing them to retain a majority of employees, maintain a high percentage of their current payroll during the crisis and allow them sufficient time to repay the loans without adding undue stress on the businesses.