Two US pensions to invest $1.6bn in private equity

Nascent private equity programmes for the Arizona State Retirement System and the Employees Retirement System of Texas are making major commitments to the asset class this year.

The Arizona State Retirement System and the Employees Retirement System of Texas have jumpstarted their recently created private equity programmes with plans to commit a combined $1.6 billion (€1 billion) to fund managers in 2008.

Launched in July 2007, the Arizona retirement system’s private equity programme plans to commit $995 million to various funds this year, according to minutes from its 6 February investment committee meeting. The $28.3 billion retirement plan allocates 5 percent of its assets to private equity; as of 6 February, $60 million in commitments had been drawn down, and by the end of 2008 it expect $360 million will be drawn down, equivalent to 1.5 percent of the policy target.

Meanwhile, the $24 billion Employees Retirement System of Texas has put in place a 2008 fiscal year tactical plan for a private equity programme with a 7 percent allocation target and plans to commit $620 million during the fiscal year 2008. Over a five-year period, the retirement system expects to commit $3.4 billion to private equity funds, divided among venture capital, buyout, special situations, subordinated debt and distressed debt funds. Over the long term, the fund will invest no more that 35 percent of its private equity portfolio outside the US and there will be a 20 percent limit on general partner exposure.

According to its plan, as of September 2007, the Texas pension fund had made only one investment in private equity: a $100 million commitment to Texas Growth Fund II, a Texas-focussed investment fund created by the state legislature and backed by the state’s four largest public trust funds.

Recent months have also seen a number of increases in target allocations to private equity among pension plans. The New Mexico Educational Retirement Board increased its target allocation from 5 percent to 10 percent; the Washington State Investment Board increased its target allocation from 17 percent to 25 percent; and the California Public Employees’ Retirement System increased its target allocation from 6 percent to 10 percent.