Maine state pension won’t sell to rebalance overweight PE allocation; may adjust pacing

The system won’t sell any assets to meet its target despite the denominator effect’s impact.

Maine Public Employees Retirement System will not take any action to reduce its private equity portfolio, despite its actual allocation being 7.5 percent above its target.

However, the system will consider readjusting its pacing as it contends with the dreaded denominator effect.

Many public pension systems have had their private equity exposure push beyond policy caps, the result of private equity marks holding relatively strong even as their public holdings have fallen in the market turmoil.

“The denominator effect has been real,” said Maine chief investment officer James Bennett at the $17.8 billion system’s board meeting held on 13 October. Affiliate title Buyouts watched a webcast of the meeting.

According to a presentation led by Bennett, Maine allocates 20.9 percent to private equity, above its target of 12.5 percent. The upper end of the system’s targeted range to private equity is 20 percent.

Maine’s private market assets currently make up 55 percent of the overall portfolio, above their combined targeted weight of 47.5 percent, Bennett said. In addition to private equity, Maine’s private strategies include credit, infrastructure, natural resources and real state.

Bennett said he would not recommend selling private equity assets to rebalance its allocation.

“It will work itself out and we will be consistent with our targeting,” Bennett said.

He said investment staff would walk through a possible pacing plan at its December meeting.

“The denominator effect does inform our pacing. Given where we are, we have to make considerations about the size of our commitments and what kind of commitments we will make over the next few years,” Bennett said.

Earlier this year, Maine decided to reduce its private equity target allocation from 15 percent to meet a deadline that requires it to eliminate its unfunded liabilities.

The system also committed $100 million to Farallon Capital Institutional Partners, which manages a multi-strategy fund that includes direct investments.