By Muskan Arora
The State
of Wisconsin Investment Board plans to hike its private equity/debt target allocation
in 2025, as discussed at its October workshop.
The
strategy of moving towards private investments is working for the system, as
the ten-year geometric return for private equity/debt was 8.1% whereas for public
equity it is at 5%.
Private
equity has outperformed the public equity market as for the ten-year return (ending
June 30), as the PE portfolio returned 5.7%, net of fee.
The system plans
to increase the PE/Debt allocation to 20% from 18%. However, the board will be
presented with final recommendations at the December meeting.
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Allocation
to real estate at 8% is maintained, as the “exposure can enhance
risk-adjusted returns” considering the markets’ shift towards higher interest
rates and inflation levels.
To support
its long-term plan, the system considers decreasing equity allocation to 38%
from 40%, whilst maintaining 27% allocation to fixed income and 19% to TIPS.
“Strong
equity performance over the past 12 months has further stretched valuations,
weighing on forward-looking returns,” as stated in the meeting materials.
In the first quarter of the year, the system committed $585m
to new private equity investments.
The system leaned towards supporting growing, high margin business
within the industrial sector, Sterling Group Partners VI and Inflexion
Partnership Capital Fund III for a large part of the allocation, alongside a customized
multi-strategy fund Audax Private Equity/Strategic Capital–SW.
WRS’s core trust fund’s allocation to private equity/debt
was 19.4%, as of March 31.
