South Carolina lifts private equity and credit as cashflow turns positive

The $50 billion-plus South Carolina Retirement System Investment Commission’s (SC RSIC) shift into positive cashflow has enabled an increased allocation to private equity and private credit.

The changes, which are expected to boost long-term returns, took effect on July 1 following a five-year strategic review.

“The better that liquidity position is, then it gives you a greater ability to have more exposure to the things that we think are going to add value over their public equivalents over time, like private equity, private debt, private real assets and hedge funds,” chief executive officer Michael Hitchcock said in an interview with Top1000funds.com.

Funding reform, improved salaries, and positive investment returns have flipped the defined benefit plan’s position from about four per cent cash outflows in 2016 – roughly $1 billion of annual outflows on its then-$30 billion size – to about one per cent cash inflows today.

“That’s self-reinforcing because you don’t have those outflows, you’re able to invest in the things that are giving you a better return. So that really has a multiplier effect for helping improve funded status.”

Private equity was boosted by three percentage points to 12 per cent of the portfolio while private credit was increased by one percentage point to eight per cent. Those tilts were funded from the plan’s equity and bond allocations.

Interim chief investment officer Bryan Moore said private equity was SC RSIC’s “purest expression of risk”.

“Back in 2019, we were talking about having a nine per cent private equity target – we were always underweight private equity,” he said.

“We didn’t have a very consistent deployment schedule and we really refined our sourcing methodology, as well as our use of co-investments, and that has very much allowed us to move this portfolio into something that feels very high quality.”

The fund targets smaller managers and co-invests alongside them to moderate the impact of the J-curve.

Over three years, the asset classes that delivered the highest excess returns above their benchmarks were real assets ($922 million added return), portable alpha ($675 million), and private equity ($480 million).

Infrastructure makes up about one-quarter of the fund’s real asset portfolio (about 3 per cent at the plan level) and has provided strong consistent cashflows that match the plan’s long-term liabilities.

“We really want to get the more core-like infrastructure assets that look and behave like infrastructure assets versus opportunistic where you’re using maybe an infrastructure asset, but with a private equity playbook,” he said. “We’re not doing infrastructure that has more of an operating company play to it.”

The fund’s portable alpha strategy has also delivered, adding about $1.8 billion to the plan since 2018 with no down years, Moore said. It uses Treasury futures to fund its exposure to equity market-neutral and multi-strategy hedge funds.

“I think scalability is going to be hard as we think about a plan that’s growing. We have a lot of relationships from when we were $30 billion plan that no longer need more capital, that are returning profits to us.”

While the SC RSIC is banking on private assets to deliver long-term outperformance, it was strong equity markets that drove the bulk of its 11.34 per cent net gain in 2024-25. Its equity portfolio is passively indexed to the MSCI ACWI IMI Net index.

Equities make up the bulk of its portfolio, which was simplified in 2020 across five asset classes: public equity (43 per cent), bonds (25 per cent), private equity (12 per cent), private debt (eight per cent) and real assets (12 per cent).

The fund has held its position close to benchmark across the calendar year given high levels of uncertainty following the Liberation Day announcement in April.

“There’s so much noise happening in the world right now that we’ll see what wave crashes, and then we’ll adjust the portfolio as we see that happen, but I think that’s where having that optionality and the ability to counterattack is really a valuable part of our portfolio.”