South Carolina Retirement System Invested $300M in Private Equity, Private Credit Funds

The pension fund added new investments in private equity despite being over the allowed target allocation.

The South Carolina Retirement System Investment Commission allocated nearly $300 million to a number of alternative investment managers between June 1 and September 13, according to the fund’s September 14 board meeting 

The funds receiving investment from SCRS include KPS Capital Partners Special Situations Fund VI and Special Situations Mid-Cap Fund II, which will receive $100 million and $25 million from SCRS, respectively. Banner Ridge Partners will receive $40 million for its Secondary Fund V and $13.4 million for its Secondary Fund V Co, both private credit funds. Varsity Healthcare Partners will receive $50 million for its IV fund. Brookfield Strategic Real Estate Partners will also receive up to $100 million for a real assets fund.   

As of June 30, SCRS allocated 13.6% of its portfolio to private equity and 9% to private debt, higher than the targets of 9% for private equity and 7% for private debt. The private equity allocation was also greater than the fund’s allowable range of 5% to 13%. 

SCRS CIO Geoff Berg addressed the private equity portfolio and private market authorization exceeding the upper end of the “authorized range” in the meeting and noted that staff would be addressing the overage at a later date and that “the process of doing so will take time.” 

The investment commission’s notes for the meeting included a table that showed a grade of “reasonably off target” for the policy portfolio for four consecutive quarters, citing the private equity allocation. In March, Berg told the commission that the plan was overweight “due to the ongoing strong performance of private assets relative to public markets.” The reported allocation to private equity of 13.6% on June 30 is lower than the 15% on March 31 that was reported in June.  

The commission monitors the targets because it “believes that long‐term investors should resist the temptation to adjust their long‐term asset allocation in response to short-term volatility in capital market expectations. The Commission will not depart from [its] asset allocation review schedule,” according to the commission meeting agenda notes. The SCRS is following a trend to take advantage of growth in alternative assets, as public pension funds have been investing more in alternative assets than at any time in history, according to recent research. 

The pension fund managed $40.6 billion in assets across the state’s retirement system as of June 30. Public equities made up a majority of the fund’s holding at 44.3%, bonds accounted for 20.6%, and 12.5% is in real assets.  

The SCRS also reported it has 12 vacant staff positions, including three investment officer positions, four investment associate positions and five additional vacancies. The fund plans to fill any vacant roles “as best serves the needs of the agency,” according to the meeting minutes. 

The fund exceeded its internal benchmarks for public equity, private equity and real assets for the quarter ending June 30. Bonds and private debt did not exceed their benchmarks. The fund’s returns for the last one, three, five and 10 years were 6.83%, 10.79%, 7.19% and 7.11%, respectively, compared with the firm’s respective benchmark returns of 5.49%, 7.83%, 5.98% and 6.46%.  

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