Minnesota State Board of Investment, St. Paul, on Tuesday approved a total of $1.5 billion in commitments to alternative investment funds, all subject to successful contract negotiations.
The board, which oversees a total of $89.5 billion in state public pension and other assets, committed $250 million to BlackRock Middle Market Senior Fund, a private debt fund, and $150 million to Carlyle Partners VII, a private equity buyout fund. The commitments are the first to those BlackRock and Carlyle Group funds.
The board also made commitments to new funds from their existing private equity managers: $250 million was committed to Dyal Capital Partners IV, which invests in alternative money managers; $150 million to Thomas H. Lee Equity Fund VIII, a buyout fund managed by Thomas H. Lee Partners; and $100 million each to Public Pension Capital, a middle-market private equity fund managed by PPC Enterprises, Warburg Pincus Financial Services Fund, which invests in financial services firms, and Windjammer Senior Equity Fund V, a middle-market fund managed by Windjammer Capital Investors.
The board also approved real assets commitments to new funds of existing energy managers: $150 million each to Energy Capital Partners Fund IV and NGP Natural Resources XII, managed by NGP Energy Capital Management.
Also, $100 million was committed to existing distressed debt manager Oaktree Capital Management for its Oaktree Special Situations Fund II.
Also on Tuesday, the board approved the rehiring of State Street Corp. as its custodian under a five-year contract, pending successful negotiations, said Mansco Perry III, the board's executive director and chief investment officer. State Street's current contract with MSBI expires April 30. The board issued an RFP in July. Bank of New York Mellon was the other finalist.
Separately, the board approved plans to allocate its $64.1 billion in state defined benefit plan assets to a strategically oriented target asset allocation from its current asset class-based categorization.
The new allocation will put from 50% to 75% of assets in capital-appreciating growth investments, 15% to 30% in income-oriented growth investments, 5% to 20% in protection investments, zero to 10% each in real return and inflation-protection investments, and zero to 5% in liquid investments.
Components for each new category are public and private equity under growth; investment-grade and multiasset credit under income-oriented growth; core and private real estate under real return; U.S. Treasuries under protection; Treasury inflation-protected securities and commodities under inflation protection; and cash under liquidity.
Limits in private vehicles would be 20% of total assets in appreciated growth, 10% each in income-oriented growth and real return and inflation protection, and zero in protection. The entire fund has a limit of 30% of assets that can be invested in private markets.
Currently, MSBI's target asset allocation is 58% public equities, 20% each fixed income and private markets, and 2% cash.
Applied to the new investment categories, the board's current allocation would be 72% appreciated growth, 20% income-oriented growth, 4% inflation protection, 2% each real return and liquidity, and zero in protection assets.
The board's investment consultant, Aon Hewitt Investment Consulting, and special projects consultant Pension Consulting Alliance, assisted in developing the allocations.
