→ More Influence, Closer Alignment, Direct Access: While the Fed held rates steady and the industry’s biggest and brightest attended Milken in Los Angeles, we here at Institutional Investor have been finalizing the list of nominees for the 8th Annual Allocators' Choice Awards. Thanks to everybody who’s pitched in with their suggestions and nominations — y’all have come up with some great names for this year. We’ll have the list out shortly; stay tuned.

In addition to Milken and the ACAs capturing our imaginations, we also saw that Maryland’s $70 billion state retirement system is partnering with Barings to launch a $250M real assets program focused on lower middle-market direct deals and emerging managers. The “heart of the partnership” (their words) is the Terrapin Middle Market Infrastructure Fund — a closed-end, “fund-of-one” targeting opportunities in the energy transition, digital infrastructure, and transportation sectors.

This move follows Maryland pushing towards further investments in sustainable and diverse asset managers. The system recently formed a climate advisory panel to address portfolio risk and codified the system’s emerging manager program into its investment policy.

While mainly North American-focused, the fund will allocate some capital toward Europe. But crucially, $50M will be reserved exclusively for in-state infra investments and Maryland-based emerging managers.

This could be a big win for both Maryland and Barings — the state gains targeted exposure to real assets while supporting local infrastructure and emerging managers; the asset manager deepens its ties to state allocators and expands its middle-market footprint.
 

Public plans and managers have long formed direct partnerships, but they’re gaining momentum. In fact, Barings has made similar partnerships with other state allocators — including Alaska Permanent and Michigan Retirement’s $300M Small Emerging Manager Program. 

It makes sense. While most capital has traditionally flowed to the largest managers, Maryland is seeing overlooked value in the small and middle market space — particularly for infrastructure investments.

This is also part of Maryland’s plan to maintain more control over its investment decisions at a time when state plans’ ability to make their own investment decisions are under attack. As outgoing CIO Andrew Palmer said in a statement, this isn’t “a pooled investment with multiple stakeholders who may have differing objectives,” but rather a “focused, collaborative effort between SRPS and Barings, aligned on a common goal.”

Could we expect to see more deals that provide allocators more benefits and autonomy than a commingled vehicle could offer? If this is indeed an untapped opportunity that gives allocators more autonomy and provides more capital directly to smaller state-based managers, it’s most likely.

We’re already seeing a similar uptick in  pensions buying stakes in asset managers — like the U.K. pension NEST buying a 10 percent stake in the Australian IFM Investors. While a different structure, the goal is the same: more influence, closer alignment, and direct access to private markets expertise. 

As always, I’d love to hear what you think. Give me your thoughts via james.comtois@institutionalinvestor.com. Maybe let’s even schedule a call or a coffee? No matter who you are, it’s already been too long.