Michigan piles $1.1 billion into PE, real estate and private credit

The Michigan Bureau of Investments, which oversees $64 billion in state retirement plan assets, tapped into 11 funds across private equity and other alternatives strategies with allocations totaling over $1.1 billion, according to recently released investment reports. The investments were made in mid-2019, but only recently detailed online. Private equity saw the most activity with $887 million flowing into an asset class that already has swelled to more than $13 billion. The private equity funds selected were: Advent International GPE IX for $250 million; Dover Street X, $150 million; Harvest Partners VIII, $100 million; Permira VII, $85 million; Clearlake Opportunities Partners II, $75 million; HarbourVest Credit Opportunities Fund II, $75 million; Warburg Pincus China-Southeast Asia II, $75 million; Vista Equity Endeavor Fund II, $65 million; and Accel London VI, $12.5 million. Over the first half of 2020, the expectation is that Michigan will focus on new sponsors raising capital and existing sponsors raising successor funds. Officials said this may be a combination of buyout, venture capital, secondary and growth equity funds seeking new commitments. The portfolio currently tilts toward the middle and lower-middle market to diversify its exposure to large funds. Peter Woodford, senior investment manager of the private equity portfolio at the Michigan Bureau of Investments, wrote in most recent investment report that co-investments to play an important role in driving down average costs and in targeting specific investments with attractive risk/return characteristics. For the 12 months ending June 30, 2019, the private equity portfolio returned 14%. The $7.9 billion real return and opportunistic portfolio grew with a $177 million commitment to Castle Credit SMRS Holdings, a portfolio managed by Fortress/ICG Advisors LLC and is expected to continue to add managers as it currently has approximately $3.6 billion of unfunded commitments. The aim of the real return and opportunistic portfolio is to provide an inflation hedge and/or to gain exposure to attractive opportunities that may not fit in other parts of the investment portfolio.Officials said that they continue to like private credit opportunities, niche strategies with some scalability, and contractual cash flow. The roughly $7 billion real estate and infrastructure portfolio now includes at $50 million commitment to Blackstone’s GSO Energy Select Opportunities Fund II, which attracted $4.5 billion from investors in June 2019. The commingled fund specializes in debt and equity opportunities in the energy infrastructure sector in North America mainly with the ability to invest in Europe as opportunities arise. The real estate portfolio currently has $1.4 billion in unfunded commitments.

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