It was a tale of two quarters, according to mandates gathered by Alternatives Watch with more than $30.8 billion targeting alternative investment asset classes in the first six months of 2020.
Institutional investors allocated over $24.5 billion in Q1 2020 to alternatives, far larger than the headline tally in Q2 of $6 billion, even as COVID-19 realities hit home.
Though, while the pace and size of the allocation tally slowed as trustee meetings moved online and due diligence challenges were faced, investors too pulled back on risk appetite in general as many PE funds failed to reach their expected close in Q2 as large swaths of the U.S. economy shut down.
While LPs spent much of the time in communication with their GPs on the health of their investment allocations in the Q2 period, opportunistic investment strategies in private credit and distressed credit sprouted up, and with it came the flow of institutional dollars.
Led by Oaktree Capital’s latest fund, thought to be the largest distressed debt fund ever to be raised in totaling $15 billion during Q2, notable allocations are in the works from the public fund sector came from the $385 billion California Public Employees’ Retirement System’s (CalPERS) and its opportunistic portfolio, which houses its private credit strategies.
CalPERS announced in June that it will grow its program from 3% of assets to 5% of assets, representing an allocation increase of more than $8 billion to $19 billion in assets.
“This revision is in recognition of the increased market opportunity set, as the COVID-19 pandemic has impacted the global economy to an unprecedented degree,” wrote consulting firm Wilshire in its memo supporting the changes.
The $225 billion New York State Common Retirement Fund also weighed in with allocations of $1.7 billion across private equity, real estate, opportunistic alternatives and real asset strategies, much of this landing in tactical opportunities that emerged through the second quarter.
The fund made a $500 million commitment to Vista Credit Partners Fund III, which will invest in senior secured loans across enterprise software, data and technology companies, though one of its larger allocations was in opportunistic alternatives with a $400 million commitment to Blackstone Tactical Opportunities Fund III – N. The fund is an add-on to Blackstone’s prior investments in Tactical Opportunities I and II and will source and execute on differentiated deal flow with low correlation to public markets.
While many of the opportunistic strategies that received LP dollars were global in design, the New Mexico State Investment Council also stepped in to shore up its own economic well-being and unanimously approved a short-term, low-cost recovery fund of up to $100 million to assist distressed businesses in the state facing economic hardship due to the COVID-19 health crisis.
“As we battle the pandemic, we’ve got to explore every avenue for both protecting public health and assuring economic relief for affected individuals and businesses,” said Governor Michelle Lujan Grisham in April. “This is an important step and we will, as a state, continue to advocate for and execute essential assistance programs.”
The Investment Management Corporation of Ontario (IMCO) also committed C$250 million to Apollo Global Management, its first investment with the global private equity giant allocating to Apollo’s Accord Fund III Series B, which is a fund designed to enter the market during periods of dislocation and illiquidity. The strategy is focused on credit investments that have traded down due to liquidity-driven selling and non-economic reasons.
“Our participation in this fund demonstrates how nimble our team can be in seeking valuable opportunities for our clients,” said Jennifer Hartviksen, managing director of global credit at IMCO.
Distressed credit also got some further play with Florida’s state investment office.
The State Board of Administration of Florida’s investment advisory council, at the end of June, stated that it is looking to add to its 10% allocation in its strategic investment portfolio to take advantage of the “biggest distressed cycle, yet.” The SBA has eight distressed debt funds in its pipeline of new opportunities.
Distressed debt, special situations, and turnaround strategies had a combined $131 billion in dry powder to deploy as of June 2020, according to data from Preqin published July 2.
Top 10 Institutional Alternative Mandates H1 2020