Florida State Board of Administration is seeking private equity managers for up to $2.5 billion over the next three years, an amount that could require increasing the pension’s allocation target.
In fact, the system wants to commit up to a total of $6 billion to alternatives, which includes private equity, real estate, infrastructure and hedge funds, over the next three years, FSBA communications manager John Kuczwanski told Private Equity International.
Florida’s private equity consultant Hamilton Lane will recommend managers, as will its strategic investment consultant Cambridge Associates. Real estate consultant Townsend and infrastructure consultant Mercer will also make recommendations. Florida will not issue any requests for proposals.
In making future private equity commitments, Florida will consider “first tier” venture capital funds, general partnerships and additional funding for existing relationships, Kuczwanski said in an email. The pension system is expecting to make a combination of re-up investments and commitments to existing managers. At the moment, it has no plans to sell older private equity holdings on the secondary market.
Florida committed more than $200 million to private equity in the second quarter of 2011 and said in July that its private equity programme generated a preliminary return of 18.2 percent for fiscal 2011. Overall, the pension system scored a preliminary 22 percent return for the year, beating its benchmark and boosting total market value to $128 billion, about $20 billion above the 2010 final tally.
Recent private equity commitments include €40 million to Montagu’s fourth fund, $150 million to ABRY’s second Advanced Securities Fund and $50 million to Berkshire’s eighth fund, which closed in July on $4.5 billion.
Over the next three years, Florida plans to commit up to $2.5 billion to “strategic investments” such as hedge funds, debt funds and other alternative strategies; and another $1 billion to real estate investments.
“Back in 2010, we began a shift in our asset allocation, and that included increasing alternatives but in order to do that we needed to seek legislative authority,” Kuczwanski said. The pension has a 10 percent allocation limit to alternatives, but is hoping to increase that to 16 percent. The system did not provide an allocation break-down of individual alternative asset classes.
“We’re approaching that 10 percent and we’re seeking that expanded authority in the upcoming legislative session, which starts in January,” Kuczwanski said.