Connecticut’s state pension plan, the Connecticut Retirement Plans and Trust Funds, is looking to diversify its portfolio by backing asset managers that tend to fly under the radars of most large institutional investors, including Connecticut-based firms, women and minority-owned firms, and emerging managers with less than $2 billion in assets.
The state plans to back managers pursuing a variety of private equity strategies, including buyout, mezzanine, special situations and venture capital. The program, structured as a fund of funds with $120 million to $150 million to commit, represents the second phase of the Connecticut Horizon Fund, which was set up by the $24.5 billion state pension fund. The first phase—investing in up-and-coming liquid asset managers—was initiated last year, and the state has already invested about $500 million.
“It’s not a traditional fund of funds—one that provides an infrastructure to these smaller funds so that they can find success,” says Connecticut State Treasurer Denise Nappier. “But their returns have got to be just as good as they are for the mainstream private equity firms, and to the extent that they are not, they will be terminated.”
Last year, as part of its first phase, the Connecticut Horizon Fund program invested $435 million with four funds of funds managers, money that was ultimately earmarked for domestic equities, international equities and fixed income portfolios. Those investments “are already meeting or exceeding the performance of our more traditional liquid investments,” Nappier says.
“We believe if we limit ourselves we are going to miss out on the best opportunities out there,” Nappier notes, “so we are strongly committed to opening our doors where we believe we can get superior returns.” —Ari Nathanson