The Tennessee Consolidated Retirement System’s investment committee approved up to $500 million to Credit Suisse Asset Management’s leveraged loan portfolio at its 31 May meeting, according to a statement released Wednesday by the $36.6 billion retirement system.
The commitment, which spokesperson Blake Fontenay characterised as a separate account, is Tennessee’s first with Credit Suisse. The retirement system will finalise the commitment pending successful legal negotiations, according to a statement.
Tennessee established similar accounts earlier this year with Beach Point Capital Management and Brigade Capital Management, respectively. At least one of the accounts will have a broad mandate to invest in private debt, direct loans, high-yield, distressed debt and special situations, among other strategies, according to a source familiar with the situation.
Although Tennessee has allocated up to $500 million to each of accounts, the retirement system does not expect to actually allocate that total to the strategies, Fontenay said.
“The requests we have made for these three separate credit-related funds are for the maximum we can commit to each fund. We are simply seeking the authority to invest up to those amounts, but we are not planning on actually investing that much,” spokesperson Blake Fontenay told Private Debt Investor in an email. “We need this latitude so we can respond to changes in the portfolio and to changes in investment markets.”
“This has been discussed with the managers in detail, so they are not expecting the entire authorized amounts.”
Fontenay attributed Tennessee’s to dive into credit-related separate accounts to a desire to have “the infrastructure in place so that when an opportunity arises, we can take advantage of it”, he said in an email.
“We are making a strategic commitment which means we are moving into these strategies for the long-term and not primarily for any short-term market-oriented reasons,” he said. “We believe we can take a portion of our lower-yielding investment grade fixed income securities and have a higher long-term return for slightly greater risk. In numbers, we think we can take assets with expected returns of 2-3 percent and move them into assets with expected returns of 5-8 percent.”
In addition to its commitment to Credit Suisse, the investment committee approved commitments of $100 million to the Redwood Drawdown Fund and $30 million to Harren Investors III. Tennessee also approved a pair of real estate purchases – an office building in San Diego and an apartment complex in Austin, Texas – for undisclosed amounts.