MassPRIM invests $350m in distressed debt

The CarVal fund is focused on US and Europe, while the Canvas fund is targeting distressed opportunities in Brazil. 

The Massachusetts Pension Reserves Investment Management approved a total of $350 million to two distressed credit strategies at its meeting on Tuesday, a spokesman for the pension plan confirmed. 

The pension board made a $200 million commitment to a CarVal Investors distressed debt fund, the CVI Credit Value Fund IV, which is targeting a total of $3 billion in capital commitments, according to the meeting agenda. The board also approved allocation of up to $150 million to the Canvas Capital Distressed Credit Strategy, to be invested through a separately managed account.

CarVal Fund IV invests in loan portfolios, corporate securities, liquidations and structured credit and other distressed opportunities, primarily in Europe and the US with a small exposure in emerging markets.

The board recommended the commitment due to Carval’s track record of investing that generated “strong absolute and relative returns in loan portfolios, corporate securities, liquidation claims, structured credit and special opportunities”, the investment recommendation attached to the agenda read.

Though the document also cautioned that “as with all investments,” Fund IV carries “risks and concerns that need to be considered including illiquidity, exposure to an economic downturn, distressed market conditions and firm-specific risks.”

The Boston-based pension plan had also committed $150 million to the predecessor Fund III, which held its final close on $3.04 billion above its $2.5 billion target, PDI data showed.

The Canvas strategy targets Brazilian-based stressed, distressed or special situation-related investments.

The Canvas Capital credit fund vehicle has long-term capital with multi-year investment and harvest periods, “which allows them to be patient and scalable in approaching portfolio management”, the recommendation read. The strategy has raised a total of $365 million and is seeking $1.1 billion, the agenda showed.

MassPRIM and CarVal were not immediately available to comment further.

The pension plan included the Fund IV and Canvas commitments in its private equity bucket, which totaled $7.09 billion in assets, or 10.6 percent of the firm’s $66.85 billion portfolio as of 30 June, the agenda showed.

The asset class was slightly under its target of 11 percent and made its one year return benchmark (gross of fees) of 21.3 percent as of the end of second quarter. The pension plan’s private equity portfolio showed a 16.3 return over the three years ending 30 June, 17.9 percent and 13.4 percent over the five-year period and 10-year period ending that date, respectively.

The total fund also showed returns above its benchmark by the end of the quarter, hitting 13.2 percent one-year return gross of fees compared to its target of 12 percent. That compares with 6.4 percent returns for three years, 9.8 percent for five years, and 5.1 percent for 10 years.