Brand new start

New Hampshire’s $4.9bn state pension has a chequered history in private equity, but it has big plans for the future

The New Hampshire Retirement System has gone through a major overhaul over the past year. Its private equity programme – until recently stalled – has been brought back to life as part of a revised long-term plan.

To help drive the overhaul, the $4.9 billion pension has brought in Lawrence Johansen, a former official with the New York State Teachers’ Retirement System, to serve as director of investments. Johansen’s experience in New York included managing the pension’s external asset managers with a special focus on private equity.

A spokesman for the pension noted various changes to its investment capabilities, including the installation of a new executive director, a new director of investments, a new investment consultant and the creation of an independent investment committee.

NHRS has had a long – but patchy – history of private equity investment. As of the end of September 2009, the pension had committed a total of $603.7 million to 50 funds. However, it skipped making commitments in 2002 and 2003, and again from 2006 until last year, when the pension restarted its programme.

NHRS declined to comment on why it pulled back in certain years. The answer may lie in the performance of its past commitments, “a significant portion” of which have been sold on the secondaries market, according to a New England Pension Consultants report to the pension board.

According to internal documents, the pension lost around $30 million on commitments made in 2001. And this was not an isolated incident of private equity being unkind to NHRS. Vintage year analysis from pre-1989 to 2009 shows the pension had success investing in private equity all the way up to 1995. In 1996, however, NHRS made its first commitment that it did not totally recover.

Two years later in 1998 the pension’s private equity programme had a disastrous year. It committed $60 million, all of which has been called, with the value of the investment now standing at $29 million. The following three years up to 2001 were also all losers for the pension.

After 2005, the pension took a long break from private equity investing, meaning it missed the peak of the buyout bubble and could potentially have avoided what are widely predicted to be weak vintage years in 2006, 2007 and 2008.

Turnover could also be a factor in NHRS’ on-off relationship with private equity. The pension has rolled through five executive directors in five years. The incumbent executive director, Dick Ingram, started in January 2009.

Now private equity appears to play a large part in the pension’s future.

In 2009, NHRS started its return to the asset class with $60 million in commitments to three firms. Lexington Partners garnered $20 million from the pension for its seventh fund, which is targeting $5 billion to invest in secondaries. Two further commitments are pending, according to internal pension documents: $20 million for Audax Mezzanine Fund III and the same amount for Siguler Guff Distressed Opportunities Fund IV.

Along with hiring Johansen, the pension has a plotted a private equity programme that calls for commitments up to 2029. The plan will encompass mezzanine, infrastructure and secondaries funds, as well as venture, growth equity and buyouts. Distressed strategies will also come into the pension’s plans on an opportunistic basis, according internal planning documents.

This year the pension, which has a 4 percent target allocation to the asset class, hopes to commit another $60 million to private equity funds, targeting secondaries, buyouts and mezzanine.