Georgia: PE on its mind

The Employees’ Retirement System of Georgia has never been allowed to invest in private equity. But Governor Nathan Deal changed that last year, when he approved legislation allowing the state’s pension funds to invest up to five percent of their assets in alternatives. 

Georgia was already the last state to enter the private equity market. And a year on, the $12 billion retirement system still hasn’t made an investment. “We’re starting it up; that’s the bottom line,” a source familiar with the programme told Private Equity International. 

The retirement system’s investments are managed by The Georgia Division of Investment Services, which earlier this year hired two senior executives. Ben Cahyono, previously of Delaware Investments and Catharine Burkett, previously of Camden Partners, became co-directors of the alternatives investments programme. 

There are no plans to hire more executives for the programme, a spokesperson from the pension told PEI. It will consider hiring other staff members – like an accountant – but no recruiting efforts have taken place yet.

Since joining the team, Cahyono and Burkett have set up databases, drafted policies and ethics codes and worked on a temporary system to track investments and returns. The duo has also met with US-based general partners, looking at both primary and secondary investments. 

For a while, the investment unit had a strict ban on placement agents. But in August, the policy was reversed for private equity investments, after Cahyono and Burkett realised that because so many GPs use placement agents, it would hinder the system’s ability to work with managers.

Deal’s new legislation – the Georgia Enhanced Investment Authority Act – brings its own limitations. A state pension can only allocate up to 5 percent of its total assets to alternatives and only 1 percent of its assets during any given year. They can only commit to funds larger than $100 million that already have at least four other investors – and the Georgia pension’s commitment must not exceed 20 percent of the total fund size. 

Nonetheless, the bill received widespread political support: the state’s House of Representatives approved legislation by a vote of 104 to 53 and the Senate by 50 votes to four. 

Georgia’s pensions are following in the footsteps of its foundations, which have been active in the asset class for a while. The $1.3 billion Georgia Tech Foundation had a 20 percent allocation to private equity as of 30 June, according to its documents. 

One Georgia pension has actually already invested in private equity – the Georgia Firefighters’ Pension Fund, which was given permission to invest in the asset class in 2010 courtesy of specific of legislation. Following the bill, the pension committed to two fund of funds – but Deal’s most recent legislation prohibits it from investing in any more funds until next year, because it has already reached the commitment cap. 

Georgia is also home to the $54 billion Teachers Retirement System – but that still isn’t allowed to invest in the asset class, for undisclosed reasons. And then there’s the $1.2 billion Dekalb County Retirement System, which currently only invests in global public equity and domestic fixed income, according to its website. 

As for Georgia Employees’, it’s expected to enter the private equity market fully by the end of the year, although the pension’s executive director, Jim Potvin said he “wouldn’t be surprised” if it happened sooner. One thing’s for sure: it couldn’t be accused of rushing into it.