Virginia Retirement System Terminates One Manager, Commits to Two Others

By David G. Barry

The Virginia Retirement System has terminated one of its high-yield bond managers and approved commitments to two European-focused funds.

At VRS’ October Board of Trustees meeting, Chief Investment Officer Ronald D. Schmitz said that the investment department at the end of September terminated its $510 million commitment to PIMCO HY, a separate account within its credit strategies program. In response to a question from a board member, Schmitz said the decision was made because of both performance and a need to rebalance the portfolio. Neither Schmitz nor VRS spelled out the performance of the PIMCO account.

Schmitz said VRS committed $250 million to another credit strategy: Apollo EPF IV. The fund from Apollo Global Management will target asset-based investment opportunities in the European market. Apollo is an existing relationship for VRS. At the end of August, credit strategies accounted for $14.7 billion or 14.5% of VRS’ $101.6 billion fund. The policy weight is 14%.

Additionally, VRS also allocated €100 million (US $98.5 million) to Antin Infrastructure Partners V, which will invest in diversified infrastructure deals in Europe as well as the United States. Antin also is an existing relationship for VRS.

VRS has $15.2 billion, or 15% of the fund, in real assets. Its target is 14%. Non-real estate assets account for 4.6% of the fund, slightly above the 4.5% target.

Schmitz, who is retiring in January, also indicated that private equity returns may be a “little bit better than expected.” He said he had been projecting that those returns would be around negative 8% when the September 30 numbers were released but is now thinking it might be closer to negative 4%.

At the end of August, private equity was valued at $19.2 billion and accounted for 18.9% of the fund. VRS has a 16% target. Schmitz indicated that the fund would need to eventually wind down some of its overexposure to private equity should it seek to see opportunities in public equities and fixed income.
Andrew Junkin was hired over the summer to replace Schmitz. Junkin was previously the CIO for the state of Rhode Island.