ASRS considering over $1.5bn in debt commitments

The pension fund passed a new asset allocation plan last summer, which raised the fund’s private credit allocation.

Arizona State Retirement System is contemplating $1.5 billion worth of new credit commitments as it looks to build its debt holdings following a portfolio construction change last June.

The pension fund cited being in “various stages of consideration” for multiple new debt fund investments in documents from the investment committee’s 14 December meeting.

These potential investments come after ASRS approved a new asset allocation plan in July, which upped the amount set aside for credit vehicles. The current target allocation for private credit is 20 percent, which is up from 14 percent in the previous allocation plan, according to pension fund documents.

The organisation currently has 17.6 percent of its assets allocated to private debt. Broken down, 12.5 percent is invested in private credit, which did not define specific strategies; 4.1 percent is in distressed debt; and 1 percent is in “other”, which includes investments in publicly traded business development companies.

ASRS has also liquidated all of its high-yield investments since the rebalanced portfolio plan was enacted. Before that, the retirement plan was working to decrease exposure to the strategy based on an asset allocation adopted in March 2015, according to a fiscal year-end report from 2017.

Recently, ASRS has made multiple debt commitments totaling $750 million. These included a $300 million commitment to a European firm focused on small-ticket lease financing, as well as two commitments to existing managers: $250 million to a European mid-market lender and $200 million to a US-based CLO. The exact fund names were not disclosed in the meeting documents.

Prior to the board of trustees’ vote to change the portfolio allocation, ASRS invested $500 million into the creation of a distressed debt partnership with Cerberus, dubbed the Cerberus Sonoran NPL Fund, which targets non-performing loans in Europe.

The credit portfolio was worth over $9.75 billion as of the end of June.

ASRS is based in Phoenix and covers the retirement funds of more than 580,000 people working in Arizona. The pension fund has more than $38 billion in assets under management. The next board of trustees meeting takes place on 25 January.