Alaska Permanent Fund Corporation Reconsiders Private Equity Allocation Amidst Changing Investment Landscape

Alaska Permanent Fund Corporation (APFC) is once again reevaluating its investment strategy, particularly in private equity, after decreasing its allocation in 2023. The decision to reduce its private asset allocation from 19 percent to 15 percent last year was based on the belief that better risk-adjusted returns could be found in other asset classes like fixed income and hedge funds.

Now, as the APFC Board considers whether to make a change, they have heard from industry experts like AQR, Pathway Capital Management, and Callan on the potential benefits and risks of adjusting their private equity allocation. The decision is still pending, but if changes are made, it could impact investments in areas such as real estate, hedge funds, and gold.

Currently, APFC’s private equity portfolio is valued at $15 billion, with the largest single exposure being around $900 million. Under the leadership of CIO Marcus Frampton, the organization is shifting towards a strategy of making smaller investments in outperforming middle-market private equity funds, rather than large-scale funds. This approach allows them to access competitive investment opportunities and maintain a diversified portfolio.

In addition to private equity, Frampton’s team is navigating the high interest rate environment by exploring opportunities in fixed income investments. With the potential for higher returns in fixed income assets like treasuries and investment-grade bonds, APFC is optimistic about the possibilities for lower-risk opportunities. They have also brought their high yield fixed income operations in-house to reduce costs and enhance returns.

Furthermore, APFC is exploring real estate investments, particularly in development assets, where they see potential for higher returns. By controlling these investments in separately managed accounts and focusing on long-term holdings, they aim to mitigate risks and build a safe portfolio of high-quality properties.

One unique aspect of APFC’s portfolio is its small allocation to gold, which has been held since 2019. This allocation serves as a hedge against economic uncertainty and the value of the dollar, reflecting APFC’s cautious approach to navigating market conditions.

Overall, APFC’s reevaluation of its investment strategy reflects a proactive approach to maximizing returns and managing risks in a dynamic market environment. As they continue to assess their options, the organization remains focused on achieving their return targets while maintaining a diversified and resilient investment portfolio.

Healthcare Bankruptcies Surge in 2023: Private Equity Ownership a Common Factor

Healthcare bankruptcies surged in 2023, with a significant number of companies that went under having one common factor: private equity (PE) ownership. According to a report from the Private Equity Stakeholder Project (PESP), at least 21% of the 80 healthcare companies that filed for bankruptcy last year were PE-owned.

Eileen O’Grady, research and campaign director at PESP, highlighted that PE’s aggressive financial strategies and excessive use of debt put healthcare companies at risk, threatening the stability of critical healthcare resources nationwide. The report also noted that there were 12 bankruptcies among healthcare companies with venture capital backing, representing another 15% of the total bankruptcies in 2023.

The increase in bankruptcies among PE-backed healthcare companies can be attributed to the PE business model’s reliance on high debt levels, making these companies more vulnerable to changing market conditions. Factors such as rising interest rates, labor costs, and staffing shortages have further exacerbated financial challenges for healthcare companies.

Notably, PE firms like KKR have seen multiple healthcare company bankruptcies in recent years, with some still owning healthcare companies at high risk of default. The trend of PE-owned healthcare company bankruptcies is expected to continue in 2024, with almost all of the most distressed US healthcare companies being owned by PE firms.

The consequences of healthcare company bankruptcies go beyond financial implications, leading to a lack of healthcare access and overburdened providers. O’Grady emphasized that the private equity business model’s heavy use of debt is becoming a major liability for its portfolio companies as interest rates rise and labor costs skyrocket.

This report sheds light on the risks posed by the private equity business model to the healthcare system and underscores the need for greater scrutiny of PE ownership in the healthcare industry.

Major U.S. Metro Regions See Hot Self-Storage Deals: Carlyle Group, Bungalow Projects, and More

The self-storage industry continues to be a lucrative investment in major U.S. metro regions, with private equity firm The Carlyle Group making a significant move this week. The Carlyle Group acquired four facilities in Queens and Brooklyn for a total of $110.4 million, solidifying their position in the asset class.

In a separate deal in Kings County, Bungalow Projects and Bain Capital Real Estate purchased a development site for $34 million, where they plan to build a film production studio. Additionally, a $97.6 million hotel deal was sealed in Fort Lauderdale, Florida, showcasing the continued interest in the hospitality sector.

These transactions highlight the ongoing activity in the real estate market, with industry power players making strategic investments in various asset classes. The sales deals of the week from April 29 to May 3 demonstrate the diverse opportunities available in the commercial real estate sector.

For more information on sales deals and investment opportunities, contact editorial@commercialobserver.com. Stay tuned for more updates on the latest developments in the real estate market.