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Private Markets Monthly Monitor – 2019 in Review

Interested in gaining insight into the fund strategies most popular with investors, the most active plans and consultants, and the latest fundraising activity of their peers? Click on the button below to subscribe to the Private Markets Monthly Monitor.

In many ways, 2019 was business as usual for the private markets, with billions of dollars of investments flowing into the industry. A significant amount of which came from public pension plans as they continued to work towards fulfilling and maintaining target allocations to the asset class.

As tracked through eVestment Market Lens, public plans reported $136.9 billion of commitments to private markets strategies in 2019.

In this special edition of the eVestment Private Markets Monthly Monitor we take a look at public plan activity over the full year 2019. Click through the tabs below for highlights and insights from each asset class.

Overview

In 2019, a reported $63.2 billion was committed to Private Equity funds by 114 public plans. This amount represented 767 investments into over 275 fund managers with an average commitment size of $82 million.

Most Active Public Pension Plans

When looking at the most active public pension plans for the year, West Coast pension funds claimed positions one through four in 2019 in terms of total dollars committed to Private Equity Funds. CalSTRS led all plans by reporting $4.9 billion dollars across 24 commitments. CalSTRS’ two largest commitments in the year both went to Blackstone via a $750 million allocation to Blackstone VIII and a $650 million allocation to Blackstone Strategic Partners VIII.

The California pension was not alone, however, in cutting mammoth checks to one of the world’s largest asset managers. Blackstone collected commitments of over $500 million from each of the next four top public plan allocators in 2019;  CalPERS, Washington State (WSIB), Oregon PERS, and New York State Common Retirement Fund.

WSIB notably matched CalSTRS with a $750 million allocation of their own to Blackstone VIII. The public plan also committed $750 million to Advent GPE IX which together with the Blackstone investment, accounted for one third of their total $4.6 billion committed in 2019.

State of Michigan Retirement Systems took a different approach to investing in Private Equity compared to most other public pension plans in 2019. While they had the highest number of commitments reported in the year (31), their average commitment size at $94.2 million was the smallest average of any plan in the top ten. According to the plan’s 2019 Private Equity Review shared during a December board meeting, this is a result of the Private Equity Division’s effort to, “tilt slightly toward the middle and lower middle market to diversify its exposure to larger funds.”

Most Popular GPs among Public Plans

In terms of GPs who collected the most commitments from public plans in 2019, Advent International led the way with 31 commitments, followed by TA Associates and Blackstone each with 20 commitments. Advent International collected commitments from seven of the top ten public plans across several different funds: Advent Global Technology, Advent LAPEF VII, and Advent GPE IX, the largest which closed at $17.5 billion.

Overview

In 2019, a reported $23.8 billion was committed to Private Debt by 76 public plans. This amount represented 194 investments in nearly 100 different fund managers with an average commitment size of $123 million.

Active Public Pension Plans

Far and away the most active pension plan in 2019 in the Private Debt space was Arizona State Retirement System (ASRS). The plan allocated $5.5 billion across 11 investments in 10 managers. According to the pension plan’s Credit Asset Class Implementation Plan FY 2020, ASRS committed $1.65 billion to HPS, $1.2 billion to Cerberus, and $1.1 billion to Monroe Capital through various fund-of-one vehicles and separate accounts.

The implementation plan noted that Private Debt has been an area of significant outperformance for ASRS across 1, 3, and 5-year periods and the pension plan intends to push past their 20% target allocation to, “to take advantage of available investment opportunities with the potential to significantly exceed the target return of the total fund and the performance of the asset class benchmark.”

After ASRS, Texas County was most active public plan in Private Debt in 2019, reporting $1.9 billion in allocations across 15 commitments. Notable allocations included $300 million each to One William Street and 400 Capital.

In an investing climate where many LPs are doubling down and re-upping with their existing GPs, Tennessee Consolidated bucked the trend by entering into a sizeable new relationship with Ares Management via a $750 million commitment (potentially rising to $1.0 billion) to a direct lending separately managed account. The reported allocation, their only one to Private Debt in 2019, replaces a middle market direct lending investment that is in the process of winding down and distributing capital. The plan’s investment memo noted Ares’ pedigree as a manager with, “over twenty years of experience and a long track record of solid returns and low loss ratios.”

Most Popular GPs among Public Plans

Clearlake Capital Group was 2019’s clear leader in number of commitments captured from public plans, with fourteen reported to the manager. The manager was trailed by HPS, OrbiMed, PIMCO, and TPG. These managers each gathered six commitments from public plans in 2019, the next highest figure.

One of Clearlake’s investors, Pennsylvania Public Schools, reported a $200 million commitment to Clearlake Capital Partners VI, noting in the investment memo, “Clearlake’s investment strategy will serve to complement PSERS’ existing portfolio and a commitment to Fund VI will enable PSERS to continue its relationship with a high-conviction manager.” The investment will be Pennsylvania Public School’s fifth commitment to Clearlake and bring their total commitments to over $518 million.

Overview

In 2019, a reported $28.7 billion was committed to Real Estate funds by 96 public plans. This amount represented 306 allocations to over 130 different fund managers with an average commitment size of $94 million.

Most Active Public Pension Plans

To say that CalPERS was the most active public pension investor in 2019 is an understatement. The LP titan allocated more to the asset class than the next three largest public plan allocators combined.

CalPERS allocated an astounding $5.1 billion across 12 commitments to Real Estate – a figure that tops their 2019 commitments to private equity, traditionally the most well-funded private markets asset class in any given year. This activity is consistent with the Portfolio Repositioning initiative outlined in CalPERS’ 2018 Real Assets Annual Program Review. In 2019, the plan sought to “Continue Real Estate and Infrastructure growth through new investments.”

Oregon PERS was another highly active pension plan in 2019, reporting $1.5 billion in allocations across seven commitments with an average size of $214.3 million. In the pension plan’s Real Estate Annual Review & 2019 Plan meeting on March 13, 2019, Staff prioritized investments in Core Real Estate strategies and outlined a goal of, “$800 million – 1.3 billion in new commitments… 4-6 commitments of $150-300 million.” As outlined above they were successful in achieving these goals, if not overly so. With regards to their focus on Core Real Estate strategies, they achieved this through commitments to Harrison Street Securities, Walton Street Capital, Prologis, and Divco West.

Arizona State Retirement System (ASRS) concentrated $1.8 billion in reported allocations across three commitments. Similarly to their Private Debt allocations in 2019, ASRS made their Real Estate commitments through several fund-of-one and separate account vehicles. Commitments were reported to Ares ($600 million), H2 Capital ($389 million), and Related Fund Management ($755 million).

Most Popular GPs among Public Plans

Blackstone dominated the Real Estate rankings table in terms of commitments captured from public plans in 2019, with 26 allocations reported. Interestingly, this figure topped the number collected from their Private Equity funds. Notable commitments to Blackstone’s Real Estate division came from Wisconsin Investment Board, Oregon PERS, North Carolina (NCRS), and New York State Common Retirement Fund, who each reported allocations of $300 million. Blackstone was followed by Exeter Property Group and Rockpoint Group who collected 12 and 10 allocations respectively.

Overview

In 2019, a reported $21.2 billion was committed to Real Assets funds by 82 public plans. This amount represented 185 investments in over 90 different fund managers with an average commitment size of $114 million.

Most Active Public Pension Plans

As in Real Estate, CalPERS led the pack in 2019 for Real Assets in terms of reported commitment amount, with $3.4 billion. A majority of these allocations went to Infrastructure funds specifically, with Global Infrastructure Partners and QIC Global Infrastructure each receiving commitments of $1.0 billion. CalPERS committed a further $500 million to JP Morgan Infrastructure Investments Fund. As outlined in the Real Estate section, this activity is consistent with their strategic goals for 2019.

After CalPERS, NY State Common Retirement Fund reported the second largest average commitment amount with an average of $245 million per commitment. In total, they allocated nearly $1.5 billion across six commitments, and like CalPERS their commitments were focused on Infrastructure funds. Commitments included $500 million to Brookfield Infrastructure Fund IV and $300 million each to Morgan Stanley’s North Haven Infrastructure Partners II and Blackstone Infrastructure Partners.

After Oregon PERS who made 11 commitments in 2019, San Francisco ERS (SFERS) was the second most prolific public pension investor in Real Assets in the year, albeit with a different approach. SFERS reported 8 commitments with an average size of just $82 million, less than half of Oregon PERS’ $206 million average. Also different in SFERS’ approach was the strategy focus of their investments. The majority of SFERS allocations went to Natural Resources and Energy managers (versus Oregon PERS who allocated 65% of reported commitments to Infrastructure funds). SFERS allocated $300 million to Energy & Mineral Group across two commitments and $150 million to EMR Capital, also across two commitments.

One of the most notable investments of the year was the $1.3 billion allocation to DWS Group reported by Los Angeles County Employees Retirement Association (LACERA). It was the only allocation reported by LACERA but made the plan the fourth largest public pension allocator to Real Assets in 2019.

Most Popular GPs among Public Plans

Global Infrastructure Partners led the pack with 15 commitments reported from public pensions in 2019. Two other Infrastructure-focused managers, Brookfield and EQT followed with 13 and 9 allocations respectively. Infrastructure-focused funds attracted 41% of all 2019 Real Assets commitments. In what is possibly a sign of investor sentiment, only 19% of commitments went to Energy-focused funds.

Looking for more Private Markets Insights?

eVestment Private Markets is a market intelligence and performance analytics solution that helps investors, consultants and fund managers more efficiently answer questions critical to their business, such as:

  • Which North American and U.K. public pensions are planning commitments to fund strategies relevant to me?
  • How is the research of leading investment consultants shaping LP due diligence and fund selection?
  • How does a GP track record compare to returns from the Russell 3000?
  • How are fund managers pitching to investors and consultants? What is being well received?
  • Has a fund’s value creation been driven through market timing or operational improvements?
  • How would a private market portfolio’s returns be impacted by a decline in valuations?