Connecticut considering Goldman Sachs private credit partnership

The US pension plans to build out its fledgling private credit portfolio.

Institution: Connecticut Retirement Plans and Trust Funds
Headquarters: Hartford, US
AUM: $35.23 billion
Allocation to private credit: 0.4%

Connecticut Retirement Plans and Trust Funds is considering hiring Goldman Sachs as the debut manager of its private credit portfolio, according to materials from the pension’s July 2020 investment committee meeting.

The pension plan officially introduced private credit to its portfolio in April 2020, with a long-term target allocation of 5 percent. As of July 2020, allocation to the asset class stood at 0.4 percent.

The potential mandate is worth $350 million and it will allow Connecticut access to three private credit strategies managed by Goldman Sachs: mid-cap direct lending, large cap direct lending and strategic solutions. By entering this partnership, Connecticut will be achieving one of the main policy targets of its private credit portfolio: to commit capital to large strategic vehicles that allow for access to multiple private credit strategies.

This partnership would also allow Connecticut to negotiate a more favourable fee structure than would normally be available to standard limited partners in commingled fund structures.

The $350 million mandate will have a suggested capital allocation of $150 million to direct lending, $150 million to strategic solutions/special situations and $50 million to co-investment opportunities. The suggested commitments to specific Goldman Sachs vehicles are shown below.

The proposed partnership would be structured to provide Connecticut with some degree of discretion when it comes to investment decisions. The partnership would also be evergreen in nature, thus allowing the Connecticut to reallocate capital across different strategies over time. The targeted return objective is a long-term, net internal rate of return of 10 percent.

From a geographical standpoint, the partnership will predominantly target private credit investments in developed markets in both North America and Europe. There is leverage, however, for Goldman Sachs to make similar investments in Asia as well, should attractive opportunities arise.

The partnership will be managed by a seven-person investment committee, led by Rich Friedman, chairman of Goldman Sachs’ Merchant Banking Division and Julian Salisbury, division head. The two individuals have more than 60 years’ experience at Goldman Sachs.

Connecticut has made capital commitments to funds managed by Clearlake Capital Group and Ares Management in recent years, when the private credit portfolio existed within the pension’s high-yield asset class.

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