New data shows that among the private equity firms pension funds allocated capital to in 2020, software and technology-focused Thoma Bravo was the most popular.
Thirteen public pension funds, including the California State Teachers’ Retirement System, Florida State Board of Administration, and Massachusetts PRIM, allocated a total of $2.9 billion to three Thoma Bravo funds last year, according to a report commissioned by alternative investment technology provider Vidrio Financial. Thoma Bravo had $78 billion in assets under management as of March 31.
“2020 brought about new challenges with allocators looking for new options to combat ongoing market volatility, fee pressure, and diversification of investments to alternative assets,” said Mazen Jabban, founder and chief executive officer of Vidrio. Investors allocated $103 billion to alternatives across 600 different mandates last year, according to the report. Much of the money came in the second half of the year, after the worst of the economic slowdown.
CVC Capital Partners’ private equity funds were second-most popular among the allocators included in the survey, garnering $2.6 billion from eight pension funds. Oaktree Capital Management came in third, with $1.8 billion put into three funds, while Clearlake Capital came in fourth, with $1.3 billion allocated to eight funds. Vista Equity Partners snagged $1.1 billion from investors, which went into six funds.
Overall, pension funds surveyed put $46 billion to work in private equity during 2020. Of the funds included in the dataset, CalSTRS had the highest allocation to private equity during the year, clocking in at $31 billion.
Allocations Reflected Business’s Changing Fortunes Under Lockdown
Allocators’ investments reflected the pandemic's toll on the economy and the new sectors that flourished people worked from home and avoided travel and entertainment venues.
“The pandemic’s role in strategy selection cannot be ignored either, as real estate managers have seen traction with unique logistics funds as consumers rely on home delivery of basic goods including groceries. REITs [Real Estate Investment Trusts] investing in grocery stores proved popular as did investments in laboratory real estate. So did investments in studio space for streaming entertainment services,” Vidrio found.
Vidrio also evaluated real estate, private debt, and hedge fund firms with the highest commitments in 2020.
Pension funds allocated a total of $28 billion to real assets in 2020, with Stonepeak Infrastructure Partners scoring the highest allocation of $1.5 billion total from five pension funds. PGIM bagged $1.2 billion from two pension funds — Massachusetts PRIM and the New York State Common Retirement Fund.
Private debt — which had $20 billion of inflows in 2020 — is one of the areas that has boomed in recent years.
“Credit investing with private institutions isn’t for those who can’t bear some illiquidity,” according to the report. “One must be willing to place a bet and allow it to play out over a period of five to 10 years.”
In 2020, Ares Management received the highest private credit allocation of $1.3 billion from Alaska Permanent Fund, Texas County & District Retirement System, and the Virginia Retirement System combined.
Although hedge funds have had a few tough years, they are “back in the saddle,” according to the report, with $9 billion in new mandates. Ever-popular Bridgewater Associates received the highest allocation for the year, with $900 million from the Oregon Investment Council. The fund was the highest allocator to hedge funds in 2020, funneling a total of $1.4 billion into Bridgewater, quant manager FORT, and GMO.
Vidrio has “seen a lot of hedge fund managers move into private investments, and conversely, there is also a history of investments into private managers that became public,” Jabban said. He expects that trend will continue moving forward.
“The commingling of public and private investments will pose challenges to operational due diligence and risk management, and changes will need to come so that organizations can take control of new opportunities and avoid being bogged down by endless data and technology challenges,” he said.