AW Investor Scorecard: Investors place $11bn in alts, mostly in private equity, debt

Investors may have been hampered in their efforts to conduct manager due diligence, but many are still moving forward with allocations, as our latest AW Investor Scorecard has tracked roughly $11 billion in fresh allocations during July and August. The AW Investor Scorecard, which is a tally of mandate activity reported by Alternatives Watch, tracked allocations from pensions, endowments and foundations over the summer. Nearly 80% of the mandates were in private equity/venture capital and private debt allocations. Private equity made up 45% of the activity in July and August, while private debt accounted for 23%. Overall alternative investments are riding high across the pension universe as investment boards grapple with what is widely considered to be a richly valued stock market. According to BNY Mellon, U.S. equities were up 19.6% — driving returns in many institutional investor portfolios. While alternatives may have fallen behind in the second quarter generally, for the most part they have offered a safe haven amid market volatility. “In a study we recently conducted on performance and asset allocation trends of endowments and foundations, we saw asset allocation weights having the opposite effect on performance. E&Fs with more than $1 billion in assets suffered performance-wise in the first quarter of 2020 with higher allocations to public equity, whilst their larger peers, who tend to have higher allocations to alternatives, were somewhat cushioned from the market volatility,” said Frances Barney, head of global risk solutions at BNY Mellon. For pension plans, there returns have been mooted with some public pension plans reporting slightly positive gains for the 12 months through June. The impact of the coronavirus and the specter of market volatility is still being assessed. The aggregate funded ratio for U.S. corporate pension plans increased by 4.4 percentage points in August to end the month at 84.7%, according to Wilshire Associates. Ned McGuire, managing director and a member of the Investment Management & Research Group at Wilshire, said that August’s increase in funded ratio was also driven by the best August performance for the Wilshire 5000 since 1984 which helped propel the funded ratio to the largest increase since February 2015 and second largest increase since 2013. Improvements in funding tend to support increased diversification at pension plans. A number of public pensions over the summer reviewed their tactical investment plans. For instance, the $27 billion Employees' Retirement System of Texas unveiled its plans to boost allocations in equity long/short, opportunistic credit and relative value strategies alongside new private equity investments over the next 12 months at an August trustee meeting. This is on top of previous tactical plans to add capital to private real estate and infrastructure assets, approved in May. In total, the new alternative investment allocations could total as much as $1.8 billion overall should staffers push for the maximum number and scale of new allocations. Private equity allocations continue to dominate institutional investor activity. Attracting investor interest were some of the usual suspects – Thoma Bravo, CVC and Silver Lake. The largest allocation for the month was to Aksia’s new private credit offering, which gathered $750 million from the Virginia Retirement System. Overall private credit, including distressed debt and illiquid credit, attracted nearly $5 billion in assets while accounting for only 23% of the mandates over July and August. Stealing the show perhaps is Oaktree Capital Management, which collected $800 million across multiple pension plans for its new distressed debt fund that continues to garner widespread attention for its sizable asset raising aims. As investors continue to get comfortable assessing new managers or strategies remotely, it remains to be seen if the third and fourth quarter mandate activity will be even more brisk. July/August 2020 AW Investor Scorecard Source: Alternatives Watch reported mandates

AW Investor Scorecard: Investors place $11bn in alts, mostly in private equity, debt

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