NYC pension system has $1bn for PE

The New York City retirement system has more than $1 billion to spend on private equity this year, having only committed about $300 million of its $1.4 billion target for 2010.

Lawrence Schloss, chief investment officer in New York’s comptroller’s office, revealed some details of the retirement system’s private equity programme at a conference in New York Wednesday. In his role as CIO and deputy comptroller for asset management, Schloss manages the $102 billion city pension system’s investments.

Schloss, who was appointed to his position earlier this year, said the retirement system is in the process of “analysing” its private equity programme. The programme has about $12.5 billion of commitments to private equity, with $6.8 billion funded.

Lawrence Schloss

Staff will be looking to “trim” the system’s private equity programme based on manager performance through the downturn, he said. Schloss was blunt in his assessment, explaining good performance is easy to determine.

“It’s a real easy time to figure it out – you’ve either done really well through this time or you haven’t. If you have, congratulations and here’s some more money,” Schloss said. “If you made 1.5x your money, you’re probably doing all right. That’ll get you some sort of double digit rate of return and that’s ok.

“If you’re making 0.5x your money and you’re 95 percent invested, that’s not doing so good,” Schloss said.

For firms that fall in the middle of the performance spectrum – around a 1x multiple – it is tougher and takes some convincing, Schloss said.

Interesting strategies right now include distressed – “loan to own, workouts” – energy and secondaries, Schloss added.

The system likes to commitment toward the end of the fundraising cycle and never looks to be in the first close, Schloss said. “I don’t see any other reason to be there than in the end, because I get to see a year’s worth of deals,” he said.

Private equity needs to boost its returns back to the high teens, low 20 percent range, which has not been the case for several years, Schloss said.

“Get the returns up. There’s something really amiss in private equity. Pension funds would be ecstatic for high teens, low 20s returns,” he said. “It may just be this vintage half decade, but at some point that vintage is really going to turn to vinegar.”

The city system uses Pacific Corporate Group as its private equity consultant, and has a staff of three people for the asset class.

Schloss started his own firm, Diamond Castle Holdings, in 2004, after leaving Credit Suisse. He started his private equity career at Donaldson, Lufkin & Jenrette, where he eventually served as chairman of DLJ Merchant Banking Partners.

The New York City retirement system is made up of  the New York City Employees’ Retirement System, the city teachers’ pension, the city fire department pension, the city police pension and the city board of education retirement system.