Pensions refuse to jump ship

US public pensions have felt a lot of pain during the economic turmoil of the past year but some are still happy with their private equity allocations despite the plunging asset values of their funds.

One such pension, the $2.3 billion Houston Firefighters' Relief and Retirement Fund, says it is still strongly committed to private equity.

“We're not planning any changes. We realise this is a cycle,” says Christopher Gonzales, Houston Firefighters' chief investment officer.

The pension has not yet experienced default pressure and is not bumping against limits on its private equity allocation, which ranges between 11 percent and 18 percent. Houston's actual commitment to private equity is currently about 11.1 percent.

“We don't feel that pressure yet, we're able to closely manage our cash,”Gonzales says.

Still, Houston Firefighters is holding steady with its current relationships and is not actively looking for new relationships at the moment, he adds.

“We're managing our allocations and our cash flow,” Gonzales says.

Houston Firefighters is an experienced private equity investor, having entered the asset class in the 1980s. “The fund always had a higher [alternatives] allocation than other public pensions, it's always been above 10 percent”, he says.

The pension's portfolio was built to “weather down markets and be poised to benefit handily on the upswing”, the pension's chairman Kevin Brolan wrote in a letter to members last October. The pension staff also had to weather Mother Nature when Hurricane Ike roared through the Houston area on 12 September, causing about $20 billion in damage. The pension opened for business the day after, Brolan said in the letter.

“We had no electric but were open to facilitate any needed transactions,” Brolan wrote.“We are maintaining stability and “rolling with the punches”.”

Houston is in a similar position to many other US pensions in not looking for new partners given the floundering economy. The Oregon Public Employees Retirement Fund announced last October that it would “likely” forego new relationships this year.

Oregon, unlike Houston, is over-weighted in alternatives. Its allocation to private equity jumped from 17.4 percent last August to 19.2 percent in September, and eventually surpassed the 20 percent threshold. The $54.4 billion fund's target allocation is 16 percent, with a target range of 12 percent to 20 percent.

The $11.5 billion Kentucky Retirement System is holding its position on private equity as well, despite a recent decline in its assets. Kentucky committed $50 million to Bay Hills Capital emerging managers' plan in February this year, with the potential for another $50 million in 2010.

“We'll remain in the space and if we need to make a change, we'll cross that bridge,”Adam Tosh, the pension's chief investment officer, says.

Kentucky is actively looking for investment opportunities in the market and has interest in distressed and secondaries, though Tosh stressed that he hadn't yet seen steep enough discounts for his liking.

“We won't do anything until we see better discounts,” Tosh said.“We haven't seen a lot of things that justify the prices yet.”