Pennsylvania Schools funds private debt co-invest programme

PA Public Schools also named James Grossman as the new CIO of the $50.4bn retirement system. 

The Pennsylvania Public School Employees’ Retirement System allocated $100 million to an in-house co-investment and secondary programme for private debt at its meeting last week, spokesperson Evelyn Tatkovski confirmed to Private Debt Investor on Wednesday.

The programme will invest up to $15 million per investment, according to documents released by the $50.4 billion retirement system. PSERS has not established a definitive timeline for investing the $100 million.

A recommendation presented by PSERS managing director Charles Spiller cited cost savings, additional due diligence and the potential for stronger returns as a key reason for maintaining the in-house investing programme.

The recommendation also indicated that relationships with existing managers should contribute co-investment opportunities. Tatkovski declined to comment on specific fund managers PSERS will consider co-investment opportunities with.

As of 31 December, PSERS’ roster of private debt managers included Apollo Global Management, Arrowhead Mezzanine, Avenue Capital Group, Black Diamond, Cerberus Institutional Partners, Gold Hill Venture Lending 03, GoldPoint Partners, Oaktree Capital Management, Versa Capital Management and Windjammer Capital Investors.

In evaluating potential private debt investments, PSERS will vet a summary of the investment opportunities, details of the underlying security, deal structure, covenant and maturity profile, projected capital needs, the quality of other co-investors as well as third party diligence reports, according to the recommendation. PSERS staff will also consider the expected duration of the investment and the projected internal rate of return and investment multiple.

The retirement system’s in-house private debt allocation received its initial funding last year. PSERS had committed $36 million and netted a 5 percent internal rate of return as of the third quarter, according to Spiller’s recommendation.

In addition to funding its in-house private debt programme, PSERS recently also announced that it has appointed acting chief investment officer James Grossman to the role on a permanent basis. Grossman assumed the role in June 2013 upon the retirement of former CIO Alan Van Noord.

“The Board chose Jim after an extensive national search. We are very confident in Jim’s knowledge of PSERS investments and his ability to head PSERS’ investment operations. He performed admirably in the role of Acting Chief Investment Officer over the past year,” Board chairman Melva Vogler said in a statement. “The system is facing funding challenges which puts increased pressure on PSERS investment operations. The system will benefit greatly from Jim’s history with PSERS and extensive knowledge of the system’s investment operations. We look forward to working with him.”