The State of Wisconsin Investment Board (SWIB) in Madison this month approved a plan to boost its percentage allocation to private equity and debt by 2% or roughly $3 billion in 2025.
The aggregate private equity asset class, including venture capital and private debt portfolios, reached $26 billion as of Sept. 30. While this represents a $3 billion increase from 2023, it remains $7 billion below its new target allocation of $33 billion.
The recommended 2025 investment policy target now sits at 20% for private equity and debt, which is 2% higher than this year’s target allocation as capital deployments have closely tracked with SWIB’s multi-year pacing model. Staffers told trustees that private equity/debt offers an attractive vehicle to implement equity exposure while increasing opportunities to add value. The allocation boost was funded by a lower target in public equity. The move is also reflective of the Wisconsin Retirement System’s fully funded status.
The $166 billion fund in the third quarter allocated $730 million to private equity funds as well as $835 million to alpha funds and another $321 million to real estate strategies.
Latest private equity investments
At mid-year, combined private equity and current return portfolios, inclusive of co-investments, achieved second quartile performance for vintage years 2014-2022, with the exception of third quartile performance for 2016, and first quartile performance for 2023. As of June, the private equity and current return portfolios outperformed their benchmarks for the one-, three- and five-year time periods, according to meeting minutes.
The SWIB investment team expects deal and exit activity to accelerate into 2025.
Officials revealed that new co-investments totaled $115 million in the third quarter and included investments in energy, industrials, consumer and informational technology sectors. Overall 11 new fund commitments were made.
They were: Ashgrove Specialty Lending Fund II ($63 million); Blackstone Capital Opportunities Fund V ($75 million); Brandon Lane Partners ($70 million) and North Haven Capital Partners VIII ($75 million), both managed by Morgan Stanley; Hughes Growth Equity Fund II ($50 million), managed by Hughes & Company ; Peninsula Capital Partners VIII ($75 million); Sixth Street Specialty Lending Europe III ($100 million); SPC Wilson Point ($50 million), managed by Stone Point Capital; Sterling Group Credit Fund III ($100 million); StoneTree Investment Partners Fund I ($25 million); and VMG Consumer VI ($50 million), managed by VMG Partners.
Real estate goes beyond core investments
The system’s almost $12 billion real estate portfolio was up over 3% over a three-year timeframe and remains negative for the year, officials reported. Transaction activity and sentiment appear to be improving, according to a meeting presentation from staffers. This is due to the U.S. Federal Reserve’s interest rate cut in September.
Officials added five commitments to the program. They were: Lone Star Real Estate Fund VII ($150 million), managed by Lone Star Funds; FPA Core Plus Fund VI ($50 million), managed by FPA Multifamily; RLIF Co-investment Fund II ($50 million) and Realterm Airport Logistics Properties ($21 million), both managed by Realterm Global; and Heitman Capital Management’s Heitman Real Estate Debt Partners III ($50 million).
Hedge fund activity
The system’s “funds alpha” program saw $835 million in new commitments in the third quarter.
The hedge fund and beta one portfolios all had positive excess value added (EVA) year-to-date and that the beta one equity portfolio now generated positive EVA for the three-year period, through the end of September, officials said. The hedge fund portfolio’s positive performance was driven by equity long/short and multi-strategy funds.
Last quarter’s capital additions primarily went to existing managers, with two exception: a $15 million allocation to Taula Capital and $70 million to Altriarch Investment Management for its specialty finance strategy. At $5 billion, Taula’s fund ranks among this year’s largest hedge fund launches and is eyeing a strategic investment opportunity within the European bond market. Altriarch saw a $70 million commitment from SWIB, mostly to a specialty finance strategy.
Additional commitments included: Marshall Wace TOPS CTF ($300 million); VTF ($100 million); BlackRock EM VTF ($300 million); and the Badgerstone Marsri and SRT 1970 managed by Blackstone Alternative Asset Management ($25 million each).