Indiana pension eyes private debt allocation

 Investments in the asset class would be judged by several metrics, including the quality and stability of the general partner’s leadership team. 

The Indiana Public Retirement System (IPRS) could be on the cusp of cutting a portion of its fixed-income bucket and reallocating it toward a new classification that would include private credit.

The Indianapolis, Indiana-based retirement benefits manager is proposing taking 4 percent of its fixed-income category and lumping the assets with its private equity investments into a “private markets” subdivision. IPRS currently invests 10 percent of its money in private equity, making the new bucket 14 percent of the portfolio.

The addition of private credit came as part of an adjusted investment policy statement, which suggested breakdowns for its investment portfolio. The board did not vote on the measure, according to meeting minutes, and a representative for the fund could not be reached for comment.

In picking managers, IPRS said it would evaluate six separate criteria when picking managers: quality and stability of general partnership team; previous track record; the proposed investment strategy; whether IPRS and the potential managers hold similar interests; legal and economic terms of the proposed investment vehicle; and contribution to geographic and industry diversification.

For its performance objections on private equity and private credit commitments, the pension fund will look at relative returns, including a breakdown by sub-asset classes for debt investments, and comparison against a relevant public index.

The papers also showed an arguably favourable view of the asset class, with the presentation listing six benefits – including downside protection, higher yield relative to public credit and diversification – compared to the three risks – illiquidity, lending to smaller companies and credit risk.

Other LPs have added private debt to the mix over the past few months, including the Kern County Employees Retirement Association which set aside 5 percent of its assets for such investments.

In March, Tulare County Employees Retirement Association also added a 5 percent allocation. After narrowing the manager search in July down to Silver Creek Capital Management and TPG Capital, it opted to commit $60 million to TPG, David Kehler, TCERA’s retirement administrator, told Private Debt Investor. The capital will be put toward direct lending, collateralised loan obligations and other liquid credit and opportunistic credit.