Arizona PSPRS ropes off $1bn for private credit over 2018-19

The pension has a 16% target allocation to private credit through 2027, representing an aggregate of $7.2bn.

The pension has a 16% target allocation to private credit through 2027, representing an aggregate of $7.2bn.

 The Arizona Public Safety Personnel Retirement System discussed a pacing plan last month that sinks $1 billion into its private credit bucket across 2018 and 2019, according to meeting minutes released in the May agenda packet.

The Phoenix-based pension fund will commit $500 million this year and another $500 million next year, with a total of $7.2 billion to be invested in the asset class through 2027.

The plan boosted its private credit allocation target from 15 percent to 16 percent last year. Its current exposure is 17.6 percent. To achieve its allocation goals and to keep up with projected growth in plan assets, Arizona will boost its annual commitments from $400 million in 2017 to $900 million by 2027, representing a 10-year compounded annual growth rate of 8.45 percent.

The notes revealed PSPRS made six commitments to its private credit portfolio in 2017, representing $500 million in direct commitments.

Arizona placed $375 million into direct lending strategies: Comvest Partners’ Comvest Capital IV ($50 million); Crestline Investors’ Crestline Specialty Lending II ($75 million); Stellus Capital Management’s Stellus Credit Fund II ($75 million); Brevet Direct Lending II ($75 million); and Audax Group’s Audax Senior Debt Fund ($100 million).

The remaining $125 million committed last year went to special situation funds: KKR’s KKR Revolving Credit Partners II ($75 million) and Sabal Investment Advisors’ SIA Debt Opportunity Fund ($50 million).

These new managers bring the plan’s total number of portfolio managers within the private credit space to 38. Collectively, PSPRS has received $1.72 billion in capital distributions from their credit managers, as of 28 February.

The PSPRS Trust’s exposure to private credit includes a 57 percent allocation to illiquid funds (i.e. direct lending, distressed debt, and special situations). High yield index funds represent 27 percent of the portfolio, while liquid hedge funds constitute 16 percent.

The time-weighted returns for the illiquid portion of Arizona’s private debt book stood at 11.28 percent across five years and 9.4 percent for one year.

Cumulatively, Arizona’s 38 debt managers have generated an IRR of 10.24 percent, an investment multiple of 1.23x, and a distributed-to-paid-in ratio of 0.82x. Total returns for private credit managers represented 7.54 percent across five years and 6.63 percent across one year.