3 Large Funds Commit $700 Million to Form Capital Constellation

The $65 billion Alaska Permanent Fund Corporation (APFC) has teamed with the $100 billion-plus Public Institution for Social Security of Kuwait (PIFSS), £28 billion ($38 billion) RPMI Railpen, and the $20 billion Wafra to create a new entity known as Capital Constellation.

According to a news release, Constellation will provide capital to “next generation” private equity and alternatives managers, with Wafra advising the entity. Approximately $700 million will be initially committed to Constellation by the founders. Railpen and the APFC will each commit $200 million, while the PIFSS will commit the remaining $300 million. The entity is expected to deploy more than $1.5 billion through 2023.

“We are thrilled to bring together three of the world’s premier institutional investors to establish Constellation,” Russell Valdez, senior managing director of Wafra and a founding board member of Constellation, said in a statement. “We believe this innovative investment platform will be a key resource for investment managers as they launch and build the next generation of successful and enduring private equity, real estate, and other alternative investment franchises.”

The goal of the founders for their new consortium is to aid alternative investment managers to obtain initial fundraising by providing long-term capital base and operational support so Constellation may generate beneficial results for its members’ pensioners and citizens.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“Combining forces with leading institutional investors through Wafra will enable us to find future stars in the investment space. Looking for long-term partnerships should be a key to our success,” stated Meshal Al-Othman, chief investment officer of PIFSS.

“We believe Constellation provides us unmatched access to the next generation of successful alternatives managers, and will be a source of long-term returns that will help us achieve our mission to pay members’ pensions securely, affordably, and sustainably,” Paul Bishop, Railpen investment director and a founding board member of Constellation, said in a statement. “We think the historical outperformance of first-time funds is meaningful, as is the participation Constellation receives in GP economics.”

Subsequently, Constellation announced its first strategic partnership with private equity manager Astra Capital Management LLC, to which it has committed $100 million.

“We are delighted that our first strategic relationship will be with Astra, a firm with the talent to ascend to great heights,” Daniel Adamson, managing director of Wafra and president of Constellation, said in a statement. “We have already begun supporting Astra as a strategic partner across three continents, working closely with Mark, Bill, Kevin, Todd, Matt and the rest of their investment partners to help them realize their long-term goals.”

Tags: Alaska Permanent Fund Corporation, Capital Constellation, PIFSS, Railpen, Wafra

To better maintain Arizona’s largest public pension fund’s long-term obligations, more than 200,000 members of the Arizona State Retirement System (ASRS) will have to increase their contributions, AZCentral reports.

Expecting modest long-term economic growth that may hinder large gains, the $40 billion system has reduced its 30-year long-term outlook, which could make the increased contributions last several years.

While employees contribute around $2.2 billion each year to ASRS, the fund currently pays out around $3.3 billion per year to beneficiaries. With the retirement system’s waning opinions on future returns, the state will increase contributions by 0.3% at the beginning of the new fiscal year in July.

Despite the fund returning 13.9% last year, with an average return of 9.7% since its inception in 1975, the fund is considering pulling back its projections as the stock market’s nine-year bull run could get bearish in the coming months. While January’s selloff saw a quick rebound, economists are still weary of an eventual correction, and the fund is prepping for the possible worst-case scenario.

For more stories like this, sign up for the CIO Alert newsletter. 

“We think the level of the stock market is about right,” Paul Matson, executive director of the pension fund, told AZCentral. “We think [stock prices]will continue to grow, but not at the same rate as in the past few years.”

The increased contributions could help the fund keep up with ever-increasing liabilities. According to the Phoenix Budget and Research Department, the Phoenix-based fund could see nearly $3.5 billion per year in fiscal 2021. According to AZCentral, the reduced investment expectations prompt accounting procedures that force the fund to boost its estimated future liabilities. This can result in the higher contributions for future pensioners.

In addition, the state constitution also requires the funding assumptions and methods for public pension plans be followed in-line with actuarial standards.

According to its 2017 CAFR, the fund currently allocates 58% of its portfolio to domestic and foreign equities, 25% in bonds and direct loans, 10% in real estate, 5% in a multi-asset class, and the remaining 2% in commodities.

Tags: Arizona, Arizona State Retirement System, Contributions, Pension