By David G. Barry
With its allocation to private equity above target, the Virginia Retirement System (VRS) is pulling back on its investing in the asset class – even as the board increased its private equity target for the 2022-23 fiscal year.
In remarks to VRS’s board of trustees, Chief Investment Officer Ronald S. Schmitz said the system did not make any private equity commitments between April 19 and June 23 and is “slowing down” its investing in the segment – perhaps, he indicated, through the end of the year.
VRS’s situation is one shared by many institutional investors, owing to the success of the private equity sector over the past several years, the frenzied fundraising environment, the fact that private equity’s numbers lag a quarter behind other asset classes, and the downturn in stocks.
At the end of April, the $102.7 billion plan had 18.3% of its assets in private equity, 4.3% above its 14% target. That figure will change to 16% on July 1 thanks to the board approving a new asset allocation plan.
In conjunction with the 2% increase to private equity, the board also approved a 2% decline in public equities to 34% from 36%. At the end of April, VRS’s actual allocation to public equities was at 32%.
Private equity has been VRS’s best-performing asset class, up 26.8% for the fiscal year. Real assets were the next best-performing asset class at 16.9%. Public equities, in contrast, are down 7.6% for the first 10 months of the fiscal year.
Schmitz disclosed that VRS made four commitments in May, totaling $875 million. The largest of those commitments was $450 million to Magnetar Diversified Credit Strategies, a private credit fund. The three other funds backed by VRS fell into the real assets category: $200 million to EIG River Energy Fund, which is focused on global natural resources; $150 million to Icon Infrastructure Partners VI, which will make middle market infrastructure investments in North America and Europe; and $75 million to True Green Capital Fund IV, which invests in renewable infrastructure.
Schmitz announced last year that he is retiring at the end of the year. He will be replaced by Andrew Junkin, who has been CIO for the State of Rhode Island.