The $1.1 billion Hartford Municipal Retirement Fund recently invested $10 million in the Brightwood Capital Fund III, a direct lending fund focused on the lower mid-market. This marks the Connecticut pension’s third investment in private debt. The pension previously committed to Alcentra’s European Direct Lending Fund and the Monroe Private Credit Fund in 2013.
Wayne Moore, assistant director of investments at the pension plan, said Hartford expects to invest in two or three more funds this year. These could be re-ups with existing managers or new investments, he told PDI.
The Hartford plan set a 3 percent long-term target for private debt allocation in 2012 and Moore said the pension likes the asset class because “it captures the illiquidity premium well, we wanted the additional diversification and, most of all, we needed a vehicle that could outperform public market debt in a persistently low interest rate environment”.
The retirement fund invested in private equity for 12 years and as it did with that asset class, it’s using a pacing analysis to determine how many new fund relationships to bring on in any given year. Monroe, for instance, invested its second fund very quickly after raising it in 2013, and is already raising its next fund. Moore said the pension could allocate to the Chicago firm’s new fund but didn’t rule out finding other providers. Commitment sizes will be between $5 million and $10 million.
“During the course of the year, between re-ups and new opportunities, we expect to do two to three new deals,” Moore said. The pension plan is using Boston-based consultant NEPC to help it find managers.
Pension plans often dip their toes into alternative asset classes via funds-of-funds, until they get comfortable with sourcing and vetting direct managers, and Moore said the Hartford plan was initially looking for private debt funds of funds but didn’t find many in the space.
“We became more comfortable with the research and due diligence process [in private equity], so we also felt comfortable sourcing these three firms, but we wouldn’t rule out a US or European private debt fund-of-funds in the future,” he told PDI.