UK - Britain’s second largest pension fund, the £30bn (€38bn) Universities Superannuation Scheme (USS),  is eyeing co-investments in private equity and has announced a $750m (€484m) commitment to a US buyout fund.

The move signifies the fund’s broader push for alternatives in general and USS has confirmed it is planning to increase its portfolio in the asset class to 20% in the coming years.

USS announced this morning it has allocated $600m to Constitution Capital Partners (CCP), a Boston-based fund of fund manager team launched last year, specialising in North American middle-market buyouts.
The USS-Constitution Fund will comprise a fund of funds, invested in North American private equity funds, and a co-investment fund of direct investments made alongside top-tier private equity firms.

Under the new arrangement, USS will acquire a 10% stake in CCP, while also having committed $150m to a so-called “warehouse line” for CCP to invest in its next fund, according to Geoffrey Geiger, a private equity analyst with USS.
According to Geiger, who joined USS in September last year from Klesch & Company in London, USS is looking to increase its investments in North American middle market private equity, while simultaneously looking at more opportunities to directly co-invest in private equity.

Such a strategy “reduces the fee drag” in the investments, while “currently, already a third of our commitment to private equity is in the US”, he said.

Geiger told IPE “certain aspects” of the models used by large Canadian pension funds, who do private equity deals and buyouts themselves, are of interest also to USS in the longer term.

“We are definitely looking at co-investing,” said Geiger, who heads a team which specifically looks at such opportunities.

The fund started investing in alternatives two years ago, pledging to make a commitment of 5%. The fund now seeks to grow this investment to 20%, with roughly half of that amount eventually invested in private equity and infrastructure.
The USS-Constitution Fund will focus on investing in private equity funds with between $200m and £2.5bn in assets under management, and on direct investments in companies with revenues of between $100m and $1bn.

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