Private Equity
The largest pension in America just named a new chief for the nation’s largest private equity program. Réal Desrochers was named senior investment officer in charge of private equity at the California Public Employees Retirement System. CalPERS's private equity portfolio has about $33 billion in assets and $49 billion in committed capital. Overall, CalPERS has $236 billion under management and provides benefits to some 1.6 million people. Desrochers will report to Joe Dear, CalPERS’ chief investment officer. Desrochers is a familiar name in private equity, most notably as director for alternative investments at the $155 billion California State Teachers Retirement System, the state’s other giant pension. During his 11 years at CalSTRS, Desrochers more than quintupled the size of its private equity program to $17 billion, and garnered average annual returns of 17.5 percent. He left CalSTRS in 2009.
2 min read · 31 May 2011
The giant California Public Employees' Retirement System tentatively plans to name a new head of private equity on Tuesday, May 31st, more than a year after it put its last private equity chief on administrative leave, according to a spokesman who said CalPERS would have no further comment until then. Leon Shahinian, the former PE chief at CalPERS, was put on administrative leave after being identified in a pay-to-play lawsuit brought by former state attorney general (and now governor) Jerry Brown. Shahinian formally resigned from the $231 billion pension in Aug. 2010. The pension's $32 billion alternatives portfolio has been managed by chief investment officer Joe Dear during the nine-month search following Shahinian's departure.
1 min read · 26 May 2011
Once upon a time, there was an easy way to tell the man on the street the difference between Blackstone and BlackRock. Blackstone was a private equity colossus, while BlackRock was a giant institutional and retail money manager. Now, all of a sudden, this distinction has become fuzzier. BlackRock, which oversees more than $3.6 trillion in assets worldwide, is set to start its own private equity group, hiring three founders of Merrill Lynch’s private equity arm to help it become a player in the last alternative area where BlackRock lacked a direct presence. The new private equity group will be part of BlackRock’s alternative investment division, which manages some $115 billion in assets, already one of the country's largest alternative asset managers. Although the firm offers private equity through funds of funds, today’s announcement trumpets the firm’s intention to create its own branded private equity funds.
2 min read · 23 May 2011
On the wings of LinkedIn's IPO, a panel of three top venture capitalists discussed the fast-improving IPO environment, grooming top tech entrepreneurs, and finding companies that could be the next Google. After a long dry spell, IPOs are recovering along with an improving economy, according to Saad Khan of CMEA Capital, Axel Bichara of Atlas Venture, and Bill Maris of Google Ventures, all of whom tell Jen Rogers of Reuters Insider that now is a good time to be a venture capitalist. Still, the quest for top talent is extremely competitive, with the best entrepreneurs having multiple options. The panelists say finding the great founders of companies is what makes venture capital a difficult business.
1 min read · 19 May 2011
Vista Equity Partners has apparently begun raising its next fund, Vista Equity Partners IV. The San Francisco-based private equity firm, which focuses on software and technology firms, has total committed capital of $2.7 billion, according to the firm’s Web site. Vista was founded in 2000. The previous fund in the series, Fund III, closed in 2008, having raised $1.3 billion. The new fund was revealed as an agenda item for Thursday’s forthcoming meeting of the New Jersey State Investment Council. No word yet as to the size of the proposed commitment nor the fundraising target of the fund itself. Last year, Vista introduced a fund in a new series, Foundation Fund I, which held an interim close after having raised $195 million of its $400 million overall target.
1 min read · 17 May 2011
Less than a month after New York’s former comptroller was put in prison for a corruption scheme involving the New York Common Retirement Fund, New Mexico’s pension system filed two lawsuits, one in federal court and the other in state court, seeking damages and restitution from its own pay-to-play scandal. New Mexico’s scandal allegedly involves the state’s former pension chief as well as close associates of former Gov. Bill Richardson. In addition, the suits name many of the same people implicated or found guilty in the New York scheme. The federal suit targets defendants living outside New Mexico, while the state case is aimed at defendants in the state, according to sister magazine Buyouts. Both suits were filed by the New Mexico State Investment Council, which manages $15 billion in pension funds.
4 min read · 10 May 2011
The race is on for fresh capital, especially from giant public pension funds. At the Buyouts New York conference this week, it was clear from several of our speakers that fundraising - who has the money to invest and who will get it - was the key concern among attendees. Many panelists pointed out that pension funds were looking to boost their returns, especially since many of them are facing staggering unfunded liabilities. Having lost so much during the financial crisis, pension funds are increasingly looking to private equity and other alternative investments to 'catch up.' So, without further delay, below is an outlook for private equity spending by ten of North America's largest public pension funds. Massachusetts Pension Reserves Investment Management Total Assets (Most Recent Figure): $48.3 billion (Dec. 31, 2011) Actual Allocation to Private Equity/Alternatives: 10.6% Value of Private Equity/Alternative Investments: $5.1 billion Target Allocation to Private Equity: 10% Plans for the Year: The board of Mass PRIM, seeing how successful the pension was in 2010 with its private equity program returning 17.1 percent, decided to green light an additional $1 billion in private equity commitments in 2011, despite the fact the fund is already over its 10 percent private equity allocation target. Oregon Public Employees' Retirement System Total Assets (Most Recent Figure): $57.7 billion (Feb. 28, 2011) Actual Allocation to Private Equity/Alternatives: 21.3% Value of Private Equity/Alternative Investments: $12 billion Target Allocation to Private Equity: 16% Plans for the Year: Unlike Washington, which reduced its level of PE commitments in 2010, Oregon raised the amount committed to in 2010 to $2.2 billion from $800 million in 2009. In part, this was to keep pace with the flow distributions. With a very respectable 16 percent annual return for its private equity program over the last 30 years, Oregon shows no signs of letting up. Even though it is more than 5 percent over its private equity allocation target, Oregon announced earlier this year that it planned to commit $2 billion a year to private equity in 2011 and 2012, $2.3 billion in 2013 and 2014, and $2.5 billion in 2015 and 2016. New Jersey State Investment Council Total Assets (Most Recent Figure): $72.6 billion (Feb. 28, 2011) Actual Allocation to Private Equity/Alternatives: 6.4% Value of Private Equity/Alternative Investments: $4.6 billion Target Allocation to Private Equity: The cap on alternative investments (PE, Hedge Funds and Real Estate) may soon rise to 38% from the current 28%. Plans for the Year: Facing a huge unfunded liability of $53.9 billion, or 46% of the pension's overall expected obligations, New Jersey's Investment Council is moving swiftly to raise the maximum that can be allocated to alternative investments, such as private equity,to 38 percent (from 28 percent) in an effort to pick up some of the slack. Currently, the overall alternatives portfolio makes up 17 percent of the fund's overall assets. The rule change is likely to pass in May, so it is possible that allocations to alternatives could rise soon after that. Washington State Investment Board Total Assets (Most Recent Figure): $79.4 billion overall (Dec. 31, 2010) Actual Allocation to Private Equity/Alternatives: 25% of main $58.8 billion pension fund Value of Private Equity/Alternative Investments: $14.7 billion Target Allocation to Private Equity: N/A Plans for the Year: Washington State has, proportionally, one of the nation's largest PE programs, with a mega-sized 25 percent portion of assets invested in the asset class. Because it has performed so well for Washington, private equity is overrepresented in the portfolio. As a consequence, Washington has been easing up on fresh commitments, with only $900 million committed in FY2010, vs. $2.2 billion committed in 2009. Nevertheless, Washington did commit a big $500 million check earlier this year to KKR's newest fund. Teacher Retirement System of Texas Total Assets (Most Recent Figure): $105.3 billion (Dec. 31, 2010) Actual Allocation to Private Equity/Alternatives: 8.9% Value of Private Equity/Alternative Investments: $9.4 billion Target Allocation to Private Equity: 10% Plans for the Year: As Texas Teachers prepares for Brian Guthrie to replace Ronnie Jung as executive director, the fund's private equity program saw a Texas-sized 19.4 percent return in 2010. Add that to an impressive 19.7 percent average annual return for the fund's private equity program over the last 20 years. Despite those returns, the fund is actually underweight in private equity, so look for more money to be committed in the second half of the year. Ontario Teachers' Pension Plan Total Assets (Most Recent Figure): $111.5 billion (Dec. 31, 2010) Actual Allocation to Private Equity/Alternatives: 11.2% Value of Private Equity/Alternative Investments: $12.4 billion Target Allocation to Private Equity: N/A Plans for the Year: The Ontario Teachers' in-house private equity firm has $12.4 billion under management and makes its own direct private investments, often in concert with other Canadian pensions or with other private equity firms. For the last 20 years, the returns on for the private capital group for the pension has been an extremely respectable 18.5 percent. Recently, OTPP announced that it would try to dispose of its majority stake in the Toronto Maple Leafs hockey team and the Toronto Raptors of the NBA. That a pension fund would hold direct stakes such as this, and has such a strong record doing so, indicates that the do-it-yourself Canadian system is working well. The pension has also become one of the leaders in ultra-long-term direct investments in infrastructure. New York City Retirement Systems Total Assets (Most Recent Figure): $115 billion (Jan. 31, 2011) Actual Allocation to Private Equity/Alternatives: 5.8% Value of Private Equity/Alternative Investments: $6.7 billion Target Allocation to Private Equity: N/A Plans for the Year: Led by former PE executive Larry Schloss, New York City's five pensions have in charge someone who knows the PE space. In a Buyouts interview earlier this year, Schloss said in order to to keep a $12 billion portfolio (in committed capital) reasonably static, the pensions he manages will have to add about $1.5 billion to $2 billion in new commitments a year. Given that New York has not made any big ticket commitments thus far in 2011, keep an eye out for new commitments toward the second half of the year. Florida Retirement System Pension Plan Total Assets (Most Recent Figure): $124.2 billion (Dec. 31, 2010) Actual Allocation to Private Equity/Alternatives: 4% Value of Private Equity/Alternative Investments: $5.1 billion Target Allocation to Private Equity: 5% Plans for the Year: Florida is moving to raise the allocation target for private equity to 5 percent from 4 percent. The current portfolio is 4 percent invested in private equity. The system also has a 7 percent cap on PE. California State Teachers' Retirement System Total Assets (Most Recent Figure): $150 billion (Feb. 28, 2011) Actual Allocation to Private Equity/Alternatives: 13.4% Value of Private Equity/Alternative Investments: $20 billion Target Allocation to Private Equity: 12% Plans for the Year: CalSTRS's private equity program, led by new PE Director Margot Wirth and CIO Christopher Ailman, saw a return of 17.2 percent for the year ending Sept. 30th. The fund is being managed under a new asset allocation plan that aims to better protect the pension from market upheavals like the financial crisis, when all asset classes seemed to correlate in one direction - down. The pension's private equity investments, at 13.4 percent of the portfolio, are slightly over its 12 percent target rate, making it less likely that CalSTRS will be in a hurry to make very large ticket commitments. Although CalSTRS recently announced its unfunded liabilities amounted to $56 billion, the pension was still chosen as large public fund investor of the year award from Institutional Investor magazine. California Public Employees' Retirement System Total Assets (Most Recent Figure): $228 billion (Jan. 31, 2011) Actual Allocation to Private Equity/Alternatives: 14.1% Value of Private Equity/Alternative Investments: $32.2 billion Target Allocation to Private Equity: 14% Plans for the Year: CalPERS is currently wrapping up its search for a new senior alternative investment officer, following the resignation nearly a year ago of Leon Shahinian in the aftermath of the pension's placement agent scandal. Much decision-making has been on hold awaiting the new appointment. In the interim, the alternative program has been directly overseen by Joe Dear, CalPERS's chief investment officer. While there haven't been any very large-ticket commitments of late, there has been an unconfirmed sale of an $800 million tranche of PE assets on the secondary market. Such a sale could be seen as a way to free up funds so the new private equity manager has a freer hand. A spokesman for CalPERS said the giant pension is exactly at its target allocation, 14 percent, but with PE distributions coming back to CalPERS, the pension would need to make some large commitments in the second half of 2011 just to maintain its current PE allocation. CalPERS will also likely use its clout with PE firms to gain access to co-investment opportunities. CalPERS is also likely to continue to own large direct stakes in several private equity firms, including Apollo, Carlyle and Silver Lake.
6 min read · 28 April 2011
The outlook for private equity is improving, but it is becoming increasingly hard to find opportunities at reasonable prices, said Josh Harris, a managing partner at Apollo Global Management, in an exclusive video interview with Reuters Insider at the Buyouts New York conference. Harris adds he doesn't see prices of target companies coming down until leverage begins shows signs of tightening, which probably won't happen until the Federal Reserve starts raising interest rates. Apollo is one the the world's largest private equity firms with $68 billion under management. The company went public at the end of March. Harris told Rhonda Schaffler of Reuters that private equity continues to gain favor among institutional investors, and that trend is part of a general shift toward alternative investments.
1 min read · 28 April 2011
In an exclusive interview at Buyouts New York, David Rubenstein, founder and chief executive of The Carlyle Group, says that China will spend the better part of this century as the world's largest economy, making that nation an extremely attractive place to invest. But don't count out the United States yet, he said. In a conversation with Chrystia Freeland, Editor of Reuters Digital, Rubenstein also discussed the shifting tides of regulation, saying that with the passing of the Dodd-Frank law, the aspect that the financial community is most uneasy about is the absence of certainty as these new financial regulations get interpreted and implemented over the next few years. Finally, Rubenstein said that in private equity's fundraising race, sovereign wealth funds will be taking an increasing role in coming years when compared to public pension funds, which don't have as much money to invest as they did a few years ago.
1 min read · 26 April 2011
The Washington State Investment Board today approved a $300 million commitment to a new fund being raised by Providence Equity Partners, the Providence Equity Partners VII, L.P. Liz Mendizabal, who heads up Public Affairs for the Washington State pension, said the state has had a longstanding relationship with Providence. “We have confidence in them and have been pleased with the results,” she said. The Olympia, Wash.-based pension, which manages $79.4 billion in assets, last made a commitment to Providence of $250 million to its previous fund, the Providence Equity Partners VI, L.P. That fund, which ultimately raised $12 billion, closed in 2007, just before the financial crisis.
2 min read · 21 April 2011
