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Michigan pension fund targets lower-mid-market PE commitments

Sofia Karadima
14 March 2019

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The focus of $69.4bn pension fund State of Michigan Retirement System's private equity division is to tilt slightly toward the mid-market and lower-mid-market to diversify its exposure to large funds, according to its private equity review published in March.

Co-investment will keep playing an important role in terms of averaging down costs, and targeting specific investments with attractive risk and return characteristics.

The pension fund will focus on new sponsors raising capital and existing sponsors raising successor funds over the next 12 months, including a combination of buyout, venture capital, secondary, and growth equity funds seeking new commitments.

State of Michigan Retirement System has committed $450m to private equity during the first quarter of 2019.

The pension fund has committed $150m to Warburg Pincus Global Growth, $125m to KKR European Fund V, $100m to Greenspring Master G, $30m to 5AM Opportunities I, $25m to Greenspring Micro II, and $20m to 5AM Venture VI.

Warburg Pincus Global Growth Fund, with a target size of $13bn, focuses on transactions of various sizes and types, from early-stage and startup companies to later-stage transactions in the sectors of energy, financial services, healthcare, industrial and business services, technology, media and telecommunications.

KKR European Fund V has a €5bn target, and it was registered in Luxembourg in December 2017. Its predecessor, KKR European Fund IV, collected €3.3bn, and focuses on backing mid-cap and large-cap buyouts across Europe.

Greenspring Master G is a venture-focused separate managed account, and Greenspring Micro II is a micro-VC fund-of-funds.

5AM Opportunities I is a late-stage life sciences VC fund, and 5AM Ventures VI is a micro-VC fund-of-funds.

The market value of Michigan's investments in private equity has grown to $12.5bn as of December 2018, representing 18% of the pension fund's portfolio.

The pension fund has invested 5% of its private equity portfolio to the UK, 10.7% to western Europe, and 0.4% to eastern Europe.

The breakdown of the private equity portfolio is 45.1% buyout funds, 15.5% funds-of-funds, 14.8% special situations funds, 12% venture capital funds, 9.1% liquidation, 1.9% mezzanine, and the rest in cash and other.