Maine Public Employees Retirement System to Exit from Audax Lending Strategy, Invest in Farallon Fund

By David G. Barry

The Maine Public Employees Retirement System (MainePERS) has gotten approval to exit from an alternative credit allocation and to add a fund to its risk diversifiers portfolio.

The MainePERS board voted to enable the $17.8 billion system to exit from its investment in Audax’s senior loan strategy. The vote was taken after the board had gone into executive session to discuss. The rationale for exiting was not presented at the meeting.

According to from the meeting, MainePERS originally invested $100 million into the fund in June 2017, and it was valued at $122.6 million in June 2022. It was shown to have generated a return of 4.6%. The fund was structured as a separately managed account and consisted of loans to medium-sized North American-based, private equity-backed companies.

The board also gave the investment team the OK to invest up to $100 million in Farallon Capital Management’s Institutional Partners fund. A multi-strategy fund, it may invest in merger arbitrage, risk arbitrage, credit, long/short equity, and direct equity. It has low correlations with public equity and credit markets.

The investment falls within MainePERS’ risk diversifiers allocation, which is aimed at providing significant risk diversification benefits away from growth assets.

As of September 30, the risk diversifiers portfolio was valued at $1.03 billion, accounting for 5.8% of the total portfolio. MainePERS has a 7.5% target allocation to the segment.

Chief Investment Officer James Bennett tells Markets Group that MainePERS has been “building” its allocation to the risk diversifiers’ segment since it was approved in 2017. He said the system is under-allocated to the system “simply because we are taking our time and adding managers selectively, and not because of any conscious decision to underweight the sector.”

The commitment to Farallon is not the only recent move that MainePERS has made within the risk diversifiers’ portfolio.

During the quarter running from July 1 to September 30, it did a full redemption of $163.4 million from Windham Risk Regime and made a new investment of $100 million in Hudson Bay Fund.
The investment team also received approval from the board in July to rebalance across existing managers and strategies within the risk diversifiers’ portfolio. As a result, it did a partial redemption of $75 million of the Fort Global Contrarian Fund as well as partial redemptions of $50 million and $75 million of two Bridgewater funds.

The moves, according to a memo presented to the board, were consistent with the goal of maintaining diversification within the allocation.

MainePERS is in the process of implementing a series of asset allocation changes which were approved in May. The system reduced its target allocation to traditional credit from 7.5% to 5% and private equity from 15% to 12.5%. It also increased U.S. government securities from 7.5% to 10% and alternative credit from 7.5% to 10%.

At the end of September, private equity was at 20.9%. Despite that figure, Bennett said at the meeting that MainePERS has no plans to sell off fund stakes in a secondary sale and will instead manage the allocation through pacing. Other than risk diversifiers, the only other segment under-allocated to was alternative credit, which is still at 7.5%.