Exclusive: Minnesota CIO’s Strategy Remains Unchanged After Turbulent Markets

Mansco Perry III, receiving the Lifetime Achievement Award at the 2018 Industry Innovation Awards

A tumultuous year in domestic equities did little to influence the hardline strategy of Minnesota State Board of Investment Chief Investment Officer Mansco Perry III, a stoic advocate of long-term planning with little tactical asset allocation involved in his decision-making.

Like many others in the past fiscal year, the board’s overall portfolio performance was dented by a lackluster performance in public equity markets, generating a 7.3% one-year return, just short of the 7.6% benchmark. Treasuries actually turned out to be a relatively substantial performer for the fund in the year, having returned about 10.3%.

Regarding lessons learned after the period, there weren’t many new ones for Minnesota. “We try not to change things on a short-term basis. Over long periods, we’ll have a significant exposure to public equities both domestic and international. If you look at longer horizons, for instance, over the least 10 years, domestic equities average 14.7% and international equities average 7%. Fortunately, we have a domestic bias and we were rewarded by that—we think that over time, it’s paid off very well for us.”

“I try to take the point of view that I can’t control the market, and try to take a pragmatic approach—we don’t try to take any tactical bets,” Perry added.

The institution generated three-, five-, and 10-year returns of 10.9% (10.5% benchmark), 7.3% (7.3%), and 10.9% (10.5%), respectively.

“The only thing I believe that’s become challenging are typical market forces, in public equities—specifically international equities have been somewhat challenging. We’re not looking to change our allocation at all, we’re long-term investors and adhering to our strategic focus has been one of the keys that has made us a successful organization.

“But our private markets program, which is about 15% of the portfolio, was our biggest contributor to performance,” during the period, Perry told CIO. Private equity generated a 14.4% return, while private credit and real estate generated returns of 10.6% and 9.1%, respectively.

“We have a target of 25% for private markets, but it’ll take some time before we get there. We’ve been a long-term player in private equity, and in the last six years, they have returned more dollars in distributions than we have called out to invest.”

“Given the fact that we’re at 15%, 25% is still aspirational. We’re looking at a pretty full menu, between private equity, real estate, oil and gas, private credit, and distressed and opportunistic funds.”

During the course of the last year, the fund committed an excess of $3 billion to private markets managers, Perry said. Recent commitments have been allocated to strategies carried out by KKR ($100 million), Apax Partners ($150 million), TPG Capital ($150 million), Warburg Pincus ($50 million) and Energy & Minerals Group ($150 million).

“We’ve been investing in private markets since 1981, we’ve got one of the longest-running programs over the last 30 years, with a 30-year annualized return of 12.2%,” Perry added.