US state pension fund looks to Asia
The investment council for Oregon’s public pension system has committed $225 million to a second Asia fund being managed by US private equity firm KKR.
The council, which manages the $58.4 billion Oregon Public Employees Retirement Fund (Operf), will commit $200 million from Operf and $25 million from the Oregon Common School Fund, although this is contingent on successful negotiation of fees and other terms.
It comes as interest in Asia investments from North American state pension funds is on the rise. Just recently the Canada Pension Plan Investment Board (CPPIB) named ex-Goldman Sachs executive Mark Machin as regional president in Hong Kong. He has a remit to build a unit with 20 investment professionals.
Some state retirement funds have moved to take country- and asset-class-specific exposure. Late last year, for example, the State of Michigan Retirement Systems committed $70 million to AIRRO India SideCar Fund, managed by JP Morgan Asset Management, which is invested in the construction of two toll roads in India. This deal won AsianInvestor’s inaugural institutional product/strategy of the year award last month, and here's why.
Operf was an investor in the first Asia fund operated by KKR, having committed $100 million in 2007. This fund had an internal rate of return of 12.2%.
It is understood that KKR Asian Fund II will focus on consumer goods, manufacturing, health care and infrastructure projects in emerging and developed Asian markets. At present KKR has six Asian offices and is due to open a seventh this year in Singapore.
As part of its due diligence process, Oregon sent an Asia representative to inspect holdings, meet KKR principals and discuss the firm’s growth plans (see image).
Operf has been a regular investor with KKR. Its capital commitments to the firm amount to $6.26 billion overall – or 21% of its $29.7 billion in total PE capital commitments – and Its first six PE investments were into KKR funds dating back to 1981.
“The Oregon Investment Council is looking for the best opportunities for Oregon, no matter where they are, to benefit Oregonians,” says Keith Larson, investment council chairman.
In terms of returns, Oregon’s Public Employees Retirement System (Pers) had regular account earnings of 2.21% last year, down from 12.44% in 2010. Its worst year on record was 2008, when Pers lost -27.18%.
Private equity features prominently in Pers’ portfolio. As at the end of March its PE investments had a market value of almost $13.8 billion, above fixed income ($13.3 billion) and real estate ($6.6 billion) and below only equities ($21.8 billion).
While fixed income has returned 7.23% for Pers over the past five years, private equity has returned 5.85%, compared with public equity (0.08%) and real estate (-1.71) over the period.
A spokesman for KKR in Asia declined to comment for this article.