PSERS commits to ICG, Venor funds

The $52 billion pension plan is investing €150 million with ICG’s sixth European mezz fund and $100 million with Venor Capital Management’s second special situations fund.  

The $51.7 billion Pennsylvania Public School Employees Retirement System (PSERS) approved a new €150 million investment in the ICG Europe Fund VI and $100 million in the Venor Special Situations Fund II at a board meeting on 12 March.

 According to PSERS’ board resolutions, which were posted today (16 March), ICG’s fund strategy is to “provide structured mezzanine investments in support of middle-market sponsored European LBOs, refinancing and non-sponsored opportunities.” The target fund size is €2.5 billion, as PDI previously reported, including ICG’s own commitment of €500 million. Investments will range from €60 million to €100 million and typically have an average hold period of three to five years.

The PSERS memo outlined the market opportunity as follows: “the syndicated mezzanine market has been practically wiped out in Europe following the global financial crisis, removing many of ICG’s historical competitors. There is no imminent revival in interest and in the short-term for syndicated loans due to the changes in capital regulations. The market changes have enabled ICG to step up pricing and negotiate favorable terms, creating the most attractive market dynamics of their 25-year history.” According to the documents, ICG has invested €6.1 billion in 236 deals in the European fund mandate since 1989, achieving an 11.2 percent net IRR in that time. The predecessor Fund V posted gains of 15 percent net IRR. Fund VI is targeting the same returns. The investment was recommended to the board by PSERS’ senior portfolio manager Laurann Stepp and consultant Portfolio Advisors.

The recommendation for New York-based Venor Capital Management’s fund came to the board from senior portfolio manager Darren Foreman and Portfolio Advisors. The fund targets distressed and special situations investments through debt and equity with a goal of 20 percent returns, said a memo to the board from Foreman. The vehicle aims to raise $300 million with a $500 million hard cap. It plans to “focus on middle market companies with capital structures between $250 million and $2.5 billion.” Venor plans to make about 10 to 12 investments via this fund.

Describing its rationale for the allocation, PSERS said, “recent market trends have created an illiquidity premium that rewards investors for committing capital to longer duration investments. Such investments can command a premium of between 500 basis points to 1000 basis points compared to the more liquid alternatives. Accommodative monetary policy has allowed many companies to take on excess leverage, which has led to record issuance levels in the high-yield market.” Venor’s first fund had a vintage year of 2008 and posted a net IRR of 25.9 percent.

Separately, the pension fund also announced its calendar year 2014 returns on Friday (13 March). It posted 8.83 percent returns for the total fund, with its private markets investments, which include equity and debt funds, delivering 10.4 percent.