LP Briefs, April 2010

Caltech Seeks PE Investment Chief

The $8 billion endowment for the California Institute of Technology (Caltech) is searching for a director of private investments. The director is expected to help the endowment expand into secondary investments, distressed debt and infrastructure.

Pasadena-based Caltech needs someone to oversee the investment decision-making process for the endowment’s private equity portfolio, which includes domestic and international venture capital and buyout funds, as well as distressed investments. Caltech’s alternative assets portfolio stands at about $850 million.

The director is expected to contribute to “the exploration and development of emerging areas of investment,” such as the secondary private equity market, infrastructure, Asia and distressed debt, according to the job description.

Caltech’s past commitments have gone to fund-of-funds manager Adams Street Partners and buyout shops Advent International, First Reserve Corp., Thomas H. Lee Partners and Welsh Carson Anderson & Stowe. —Nancy GordonCalifornia Endowment Seeks CIO

The $3.1 billion California Endowment is looking for a chief investment officer to help grow its private equity program. The Los Angeles-based endowment, which is a private, statewide health care endowment, is looking for a CIO to help the organization find new investments, especially private equity opportunities. René Goupillaud, who departed last year, previously held the position. —Nancy Gordon

San Diego Pledges to Pharma Fund

The San Diego County Retirement Association, though a tad above its private equity allocation target, recently committed $25 million to Drug Royalty II, joining a parade of other limited partners backing the partnership.

The pension fund is no stranger to health care, having pledged to health care-related venture capital vehicles since 1997. It recently began exploring intellectual-property funds and identified Drug Royalty II with help from placement agency Atlantic-Pacific Capital, according to a board document.

Investment Officer Yegin Chen wanted to make the commitment because of the high expected returns from the non-cyclical pharmaceutical industry and predictable cash flows with a low correlation to the equity markets, among other factors, according to according to the board document.

The LP plans to take a seat on the fund’s advisory committee.

The manager of the Drug Royalty II is Toronto, Ontario-based DRI Capital Inc. It plans to invest in pharmaceutical royalty streams stemming from products already sold for several years by major pharmaceutical or biotechnology companies. Roughly half its investments will be in the United States and half in Europe.

DRI set out to raise $500 million for the fund, but interest has been so strong that the fund has pulled in $600 million, according to a knowledable source. A second source familiar with the situation says the fund has a good chance of reaching its hard cap of $700 million.

Besides San Diego, other LPs in the fund include Arizona Public Safety Personnel Retirement System, Los Angeles Fire and Police Pensions, Louisiana State Employees Retirement System, New Mexico Educational Retirement Board and the San Bernardino County Employees’ Retirement Association. —Nancy Gordon

LP corner, week of March 22, 2010

News briefs about Neuberger Berman, Public Sector Pension Investment Board, LA Fire and CalSTRS

Another Canadian LP Switches to Direct Investments

The Public Sector Pension Investment Board is the latest Canadian pension fund manager to express a preference for direct private equity investing.

Speaking at the SuperReturn conference in Berlin in February, Jim Pittman, vice president of private equity of PSP Investments, said that, in light of the disappointing performance of mega-buyout funds, the board plans to halve the number of relationships it has with general partners over the next three years. The fund manager will instead focus on leading direct investments or co-investments with a select number of GPs.

The Ottawa-based investor has committed to 25 GPs, 18 of which manage buyout funds. All except two of those 18 have provided lackluster returns to date, according to Pittman. PSP Investments only invested in two new funds during 2008 and 2009, and both were spin-out or first-time funds.

In 2009, PSP Investments had $4.2 billion invested in private equity funds and $3 billion allocated but not yet committed. It also had a total of $1.3 billion invested in co-investments and co-lead deals.

PSP Investments is following the leads of its Canadian pension fund peers Alberta Investment Management Co., OMERS Private Equity and the Ontario Teachers Pension Plan, all of which have demonstrated an increased commitment to direct investments with less focus on fund commitments.

PSP Investments started its private equity allocation program in 2005, and its primary goal has been to back global buyout funds and to pursue co-investments alongside them. —Angela Sormani

Portfolio Advisors Wins LA Fire Assignment

The Los Angeles Fire & Police Pensions has hired Portfolio Advisors as a private equity consultant to fill the hole left last year when it fired Aldus Equity Partners in the wake of a pay-to-play scandal involving alleged kickback schemes at New York and New Mexico state pension funds.

The adviser will help the $12.5 billion pension fund build toward a 10% target allocation, from its current perch at 5.7 percent.

The board has approved a three-year contract for Portfolio Advisors, General Manager Michael Perez said. Other finalists in the search included Cliffwater, Credit Suisse Customized Fund Investment Group, Hamilton Lane and Stepstone Group.

According to board documents, Portfolio Advisors was the only firm to suggest a sliding scale fee schedule that permits a lower fee being paid in years when fewer opportunities exist in the market or when the board slows its investment pace.

The private equity program of Los Angeles Fire and Police Pensions has two components. About 80% of new commitments go to the core component, which focuses on venture capital, buyout and special situation funds. About 20% of new commitments are made to a specialized component, which targets first- or second-time funds, sub-$500 million funds, firms that are majority owned by minorities or women, or funds that focus on specific industries or geographies. —Nancy Gordon

CalSTRS Names New PE Investment Chief

The California State Teachers’ Retirement System has named Margot Wirth as its new head of alternative investments.

The position had been empty since early last year, when longtime alternatives chief Réal Desrochers resigned. Wirth and Seth Hall—both private equity portfolio managers—had been serving as interim co-heads.

Before Wirth joined CalSTRS in 2001, she was a valuation consultant with PricewaterhouseCoopers in New York and San Francisco. She also served as a vice president at an environmentally conscious residential real estate developer in Washington, D.C.

“Margot emerged as the best choice to bring the private equity portfolio through the treacherous waters of the financial crisis, following a year-long director search,” CalSTRS CIO Christopher Ailman said in a prepared statement. “Her years of experience, knowledge of CalSTRS operations and great relationships with both investment staff and our private equity partners will position the portfolio for further growth as the economy picks up steam.”

CalSTRS currently has nearly $17 billion in private equity assets under management. It has very little hedge fund exposure, so the “alternatives” job mostly involves private equity. The LP’s private equity portfolio accounted for about 13% of the $132.6 billion CalSTRS investment portfolio as of Feb. 28.

As for Desrochers, he’s said to be back in Sacramento, Calif., after a short stint with Advanced Equities in Italy. No word yet on his future plans. —Dan Primack