Florida’s PE Appetite Returns To VC Investing –

TALLAHASSEE, Fla. – After a half year’s lull in private equity investing following the departures of key investment staff, the Florida State Board of Administration was gearing up late last fall for a return to the asset class in 2000.

The $100 billion pension’s reentry will come with a more formal approach to alternatives investing. Additionally, the pension will explore the possibility of investing in more private equity categories – including venture capital, international private equity vehicles, hedge funds and energy funds, said Frank Fernandez, Florida’s portfolio manager for private equity investments. Since making its first alternatives investment in 1988, Florida has concentrated its efforts almost exclusively on buyouts, and the pension now has some $3 billion invested in the asset class.

From inception, the private equity program has functioned as a subset of the larger public equities program, but in November, Florida opted to create alternatives as a distinct category, and named a chief investment officer for the asset class. Bill James, formerly the Florida State Board of Administration’s chief operating officer, took the post. He is assisted by Fernandez, who rose from assistant portfolio manager when Irwin Loud left Florida last May to join Muller & Monroe Asset Management L.L.C. Loud previously held Fernandez’s current post, and his departure came about a half year after the retirement of Lan Janecek, chief investment officer for domestic equities.

Janecek had been instrumental in establishing a private equity portfolio for Florida, and his retirement, coupled with Loud’s leaving months later, put the state pension’s alternative investing on hold.

Fernandez cautioned that it is too early to predict what direction the pension’s alternatives program will take, but he expected to have a better idea by mid-year.

Florida has a 1% to 4% target range for alternatives and aims to put 2.5% of its capital to work in the asset class, Fernandez said. At press time, the pension had $3 billion (3%) committed and just over $2 billion (2%) invested, he added.

With a modest-sized investment staff, Florida traditionally has sought to put its private equity money to work in sizeable chunks, maintaining a few relationships with buyout firms such as Hicks, Muse, Tate & Furst Inc., The Carlyle Group, Apollo Advisors and Thomas H. Lee Co. The pension historically has shunned venture capital investments because VC funds generally are smaller than buyouts vehicles and cannot accommodate the size of investments Florida likes to make. The state prefers to invest at least $100 million per fund, although the pension does make some smaller commitments. Florida also has used captive vehicles and co-investment funds to put its money to work. Notably, the state has since 1992 committed $1 billion to Liberty Partners for private equity deals; the firm manages Florida’s capital exclusively. Lexington Partners oversees the pension’s direct investment pool, which typically makes $15 million to $50 million investments in buyout opportunities. Florida puts out about $175 million a year in some seven to 10 deals through Lexington.

Fernandez declined comment about the performance of Florida’s alternative investments, noting that the state’s private equity program is relatively young. More than half the $3 billion committed has been promised since 1998, and more than 90% of the capital Florida has committed has been committed since 1995.

As Florida ramps up its alternatives program this year, the pension will be looking for an assistant portfolio manager for private equity to assist Fernandez. He said he hoped the position would be filled by the end of January.