Arizona works to fill private debt allocation

The US retirement system has been investing with new managers and adding to existing ones to reach its new 10 percent target to private debt.  

The $34 billion Arizona State Retirement System (ASRS), which voted in February to raise its private debt allocation from 3 percent to 10 percent, has been vetting fund managers and appointing new ones to reach its target. 

According to a presentation from the pension plan’s consultant NEPC at an April 20 board meeting, “the largest single underweight position in the fund is private debt.” The fund currently has 4.4 percent invested in the space, and estimates that with unfunded commitments it would reach around $3.7 billion in exposure to the asset class, representing about 10.7 percent of total fund assets.

According to recently released documents, the investment committee (IC) approved an amendment to an existing private debt investment contract allowing up to $75 million of ASRS capital to be invested in entities with a cross-collateralized bank loan, limited to an amount no greater than 45 percent of loantocost.  

The committee also approved an increase to $1 billion from $600 million to a senior secured direct lending mandate with a firm that ASRS has a prior relationship with. Contracts with these managers are still pending legal approval, so ASRS can’t yet release their names, said chief investment officer Gary Dokes.

The IC also approved an increase to $500 million from $300 million in its allocation to the Related Companies account, separately allocating $100 million of the increase to KSeries investing and $100 million to the Related/Highbridge mezzanine-oriented joint venture and permitting the origination of loans in London.