PSERS recommits to Apollo European distressed strategy

The pension fund chose Apollo after considering three other potential managers.

The Pennsylvania Public School Employees’ Retirement System (PSERS) has committed $200 million to Apollo Global Management to pour into assets across the Atlantic.

The Harrisburg, Pennsylvania-based $50.2 billion pension fund on Friday agreed to allocate the capital to Apollo’s European Principal Finance Fund III (Dollar A) (EPF III), which will invest in European financial institutions’ non-performing loans and non-core assets.

Apollo launched EPF III in May and set a $3.5 billion target for the fund. Chief financial officer Martin Kelly said on its second-quarter earnings call the firm would likely reach a first close sometime in the fourth quarter of this year. The firm's second European debt fund, which also raised $3.5 billion, closed at the end of 2012.

Specifically, EPF III will focus on five countries: the UK, Ireland, Spain, Germany and Italy, according to PSERS documents. EPF III will contemplate 30 to 35 investments requiring $100 million to $300 million of equity per transaction. The hold period would range from two to four years.

PSERS renewed its commitment to Apollo’s transatlantic NPL strategy, as the Keystone State pension fund committed $200 million to EPF II in 2012. The first EPF fund came to market in 2007.

“While the opportunity set to acquire NPLs and other non-core assets has evolved since EPF’s inception (both in terms of asset type and geography) the European market continues to represent an attractive investment opportunity with the potential for Fund III to generate strong risk-adjusted returns,” PSERS portfolio manager James Del Gaudio wrote in his investment recommendation.

The Leon Black-led credit behemoth landed the pledged capital after PSERS did an analysis that also looked at Bain Capital Credit, Cerberus Capital Management, and TPG Special Situations Partners – three firms in which PSERS has also committed vast amounts of capital. Those commitments include $250 million to Bain and $200 million to Cerberus for distressed debt last year, and a $150 million pledge in 2014 to TPG for the same strategy, according to PDI Research & Analytics.

At its Friday meeting, PSERS also committed $400 million to private equity, composed of a $100 million private equity allocation to Incline Equity Partners IV and another $300 million to Platinum Equity Capital Partners IV. The pension fund also invested $275 million in private equity real estate commitments, consisting of $75 million to Bell Institutional Fund VI and $100 million each to Cabot Industrial Value Fund V and Exeter Industrial Value Fund IV.