Building a co-investment team is one of the top priorities for New York City Public Pension Funds, according to its head of private equity.
Speaking on the side lines at the IPEM conference in Cannes on Thursday, David Enriquez, who oversees the asset class for the Bureau of Asset Management, said he has been examining different structures New York City Retirement Systems could adopt.
“We may be among a very few number of large plans who don’t have a co-investment strategy,” Enriquez said. “We’ve been working on that. It’s work in progress internally.”
The most appropriate model for NYCRS will probably not be the Canadian “hands-on” approach with a 30-35 person global investment team focusing on minority co-investments, nor will it be joining a passive club of pension funds who partner with a GP in a co-investment fund model, Enriquez said.
“I think we’re somewhere in the middle where we could partner with a platform, have a separate account, work side-by-side in due diligence and that platform would be an extension of staff and resources,” he said.
Enriquez added: “Without putting a timeframe, I consider it one of my near-term priorities.”
NYCRS manages more than $200 billion across five New York City public retirement systems including the $66 billion New York City Employees’ Retirement System and the $73.7 billion Teachers’ Retirement System of the City of New York.
It commits between $2.5 billion to $3 billion to funds annually, Enriquez said. Its five-person private equity team – including Enriquez – works mainly on making primary fund commitments which accounts for around 90 percent of deployment.
The co-investment market is “mature” with funds of funds, sophisticated pension funds and sovereign wealth funds already proving to be reliable partners to GPs, Enriquez added. NYCRS’ co-investment programme would need to be successful from the start, he said.
“No one’s going to give you the benefit of the doubt, that you’re a rookie who can make mistakes,” he said.
Co-investments have been growing in recent years with the value of such deals hitting $104 billion in 2017, according to data from McKinsey. Nearly two-thirds of LPs plan to invest in co-investment opportunities over the next year, according to Private Equity International’s LP Perspectives Survey 2019.
The strategy is not without pitfalls. In a September interview with PEI, Per Olofsson, head of alternatives at Swedish pension fund AP7, warned that European pensions that have invested heavily in co-investments could face a rude awakening if public markets hit a downturn.