Wafra in 2018 launched a similar platform, Capital Constellation, which brought together asset owners to support new and promising money management firms.
Covalent will initially be capitalized with $1.05 billion. AP3's commitment is $500 million, Henrik Nordlander, head of private equity for the pension fund, said in an email. The platform will focus on middle-market buyouts and growth equity investments, primarily in North America and Europe. It will actively support and partner with skilled and specialized private market managers to fund their investments "and amplify their success," the release said.
Investments will be led directly by the Wafra investment team. Commitments will be made alongside the 27 money managers with which Wafra has formed strategic investment relationships, as well as alongside managers that the Covalent founders back as limited partners.
"For AP3 this is a way to accomplish cost efficient, sustainable asset management as we strive to be a world class investor," Nordlander said in the release. "Covalent is further evidence that strategic partnerships among asset owners can support our commitment to generating superior net returns for our beneficiaries."
Steve Moseley, managing director at Wafra, added in the same release: "By deploying flexible, patient capital and collaborating with highly skilled investment sponsors, we expect to continue to construct high quality portfolios of carefully selected private equity investments in targeted sectors alongside top-tier investment firms."
AP3 invested 37.1 billion kronor, about 7.5%, of its portfolio in private equity as of June 30.
AP3 has been investing in private equity through funds since 2001, Nordlander said in the email. Changes that allowed for private equity co-investments came about in 2019.
"We have prior to that change been contemplating how best to execute on co-investments in a manner that meets our requirements and addresses our challenges as a public pension," Nordlander said.
About 2.5 years ago and based on the fund's collaboration with Wafra in Capital Constellation, "we started discussing if we could look to do something differentiated within PE co-investments as well. After a long period of finding the right model, which includes trying to align our respective institutions as closely as possible, we earlier this fall reached common ground. Covalent will be complementary to our fund commitment business — a way to deploy more capital to a lesser cost, be as cost efficient as possible whilst generating alpha for our pensioners and ensuring the level of sustainability we require is met," Nordlander added.
Wafra has more than $30 billion in assets under management across alternatives, including real assets, real estate and strategic partnerships.