LP Briefs, August 2009

LA Fire pledges to DCM

The Los Angeles Fire and Police Pensions recently made a $5 million pledge to the sixth fund of venture firm DCM, based on a recommendation of its adviser, StepStone Group.

DCM VI has a target of $475 million for its sixth fund, which is focused on tech companies in the United States and China.

In other news, LA Fire General Manager Michael Perez said that he plans to present a comprehensive disclosure policy to the pension fund’s board. The move comes in the wake of the pay-to-play scandal involving the New York State Common Retirement Fund. Dallas-based private equity adviser Aldus Equity Partners, which is facing charges related to the alleged kickback scheme, was one of LA Fire’s private equity advisers until the LP terminated the relationship in early May.

The pension fund, however, has maintained its relationship with StepStone despite the advisor being indirectly connected to the scandal. Ex-StepStone president Stephen Moseley resigned his post on May 8, citing reports that linked him to the alleged scheme. Moseley is not a target in the ongoing investigation. —Nancy Gordon

CalPERS to boost PE allocation

The California Public Employees’ Retirement System has raised its private equity investment target by 40%, while also taking the first steps toward snapping up distressed debt as slumping markets create some real bargains.

The board of the country’s largest public pension fund, managing $183 billion in assets, in June increased its target for corporate buyout and venture capital investments from 10% to 14%, with a range of 9% to 19 percent.

CalPERS spokesperson Clark McKinley says that the fund’s $22.8 billion of current private equity and venture capital investments currently represents 13% of the state pension fund’s total assets.

Pension consultant Wilshire Associates had recommended that CalPERS have a 15% allocation to private equity, but the fund’s investment officers ultimately trimmed that target, according to a memo to CalPERS investment committee. —Nancy Gordon

Wisconsin to spend over $1B on PE

The $66 billion State of Wisconsin Investment Board intends to pledge $1.3 billion to private equity funds in 2009 and will concentrate on buyout, distressed, mezzanine, credit and secondary strategies.

The state pension fund has so far made $275 million in commitments in 2009. Private equity currently represents about 7% of Wisconsin’s portfolio. Commitment sizes usually range from $50 million to $250 million. The state pension invests in leveraged buyouts; venture capital; direct, long-term loans to Wisconsin companies; and private market investments. —Nancy Gordon

Oregon cuts $1B from PE budget

The Oregon Investment Council has slashed its 2009 private equity investment budget by $1 billion due to “changes in the market,” which have forced the limited partner to trim back its investment limit to $2.5 billion from $3.5 billion, according to board documents.

“For 2009, it looks like most, if not all, commitments will be made to existing relationships,” says Jay Fewel, the state’s senior investment officer.

Among its recent investments, the state pension fund pledged $500 million to Fisher Lynch Co-Investment Partnership II in May, doubling the commitment it made to fund of funds Fisher Lynch Capital’s first co-investment vehicle three years ago. To decrease the drag on the portfolio caused by management fees, the commitment will be made over two years, with $300 million coming from the 2009 private equity allocation and the remainder from the 2010 allocation, according to Oregon’s board documents.

As of March 31, 2008, the state had an actual private equity allocation of 23%, above its target allocation of 16% and out of its preferred range of 12% to 20 percent. The Oregon Investment Council manages $56 billion for the Oregon Public Employees Retirement Fund, the State Accident Insurance Fund, the Oregon Short Term Fund and other smaller funds. —Nancy Gordon

Maine makes first PE pledge

The Maine Public Employees Retirement System recently made its first commitment to private equity. The system pledged $30 million to buyout shop Hellman & Friedman’s seventh fund.

The state pension fund’s private equity program, established last year, has a 5% target allocation. For this year, the LP will likely commit between $165 million and $200 million, says CIO Andrew Sawyer.

The intent is to invest across a broad array of strategies, including buyouts, venture capital, distressed and mezzanine funds. It will be allocated based on market conditions and the transactions that the LP sees in the marketplace, says Sawyer. He hopes to reach the target allocation in three to four years.

In March, Maine hired Cliffwater to provide private equity investment consulting services. Sawyer came on board in February 2008 and created the state’s private equity program. —Nancy Gordon

Philly to invest $40M

The City of Philadelphia Board of Pensions and Retirement plans to commit $40 million to private equity in 2009, says CIO Christopher McDonough.

The $3.2 billion retirement fund’s actual allocation to private equity stands at about 11.5%, with a target allocation of 12 percent. —Nancy Gordon

PCG pays $2M to settle probe

Pacific Corporate Group, a La Jolla, Calif.-based private equity consultant, has settled its role in a probe by New York Attorney General Andrew Cuomo into alleged kickbacks involving public pension funds.

The agreement calls for PCG to adopt a code of conduct governing pension investments, and for an affiliate to pay more than $2 million in restitution to the New York State Common Retirement Fund in exchange for not having to face civil or criminal charges, Cuomo said.

Cuomo is conducting a nationwide probe into whether private equity firms and hedge funds are making improper payments to win pension fund business, a practice known as “pay-to-play.”

Private equity firms The Carlyle Group and Riverstone Holdings previously and separately agreed to pay $20 million and $30 million, respectively, and adopt the code of conduct, which bars the use of intermediaries to gain access to pension funds.

PCG is the first pension fund adviser to adopt the code.

Cuomo said his probe revealed that the PCG affiliate was a minority partner in a joint venture that paid kickbacks to win a $750 million investment from the $109.9 billion New York Common fund, one of the nation’s largest public pension funds.

“As a gatekeeper to public pension funds, PCG has a responsibility to exercise the highest level of ethical conduct in its work,” Cuomo said in a statement. “By proactively adopting our Code, PCG has set an important example.”

In March, a grand jury returned a 123-count indictment against David Loglisci, the fund’s former chief investment officer, and Henry “Hank” Morris, a top fund-raiser to former state Comptroller Alan Hevesi, related to the case. The Securities and Exchange Commission has also accused Morris of reaping kickbacks from helping firms get hired to invest in the Common fund.

PCG, in a statement released by Cuomo, said it settled “to make the public whole for the improper actions of a former executive, to put this episode behind us and to move our business forward.” —Jonathan Stempel, Reuters

Ill. Teachers continues search

The Teachers’ Retirement System of the State of Illinois was scheduled to meet on July 31 to interview executive search firms, one of which will be hired to identify candidates for the executive director position that’s been vacant since April when Jon Bauman resigned. A finalist will likely be selected in August.

CIO Stan Rupnik will remain acting executive director until the position is filled. The LP is also interviewing candidates to replace Lamar Villere, formerly the senior alternative investments officer, who left earlier this year to oversee the Tennessee Consolidated Retirement System’s private equity program. A search also continues for a general investment consultant.

TRS of Illinois had assets of $27.2 billion as of March 31. In late May, the state upped its target allocation to private equity to 10% from 8 percent. It had an actual private equity allocation of 9% at the end of March. —Nancy Gordon

Fresno taps secondary fund

The Fresno County Employees’ Retirement Association has chosen Landmark Capital Partners to manage a secondary pledge, although the $30 million commitment is contingent upon a review, said Roberto Peña, retirement administrator.

Landmark Equity Partners XIV plans to acquire partnerships that are four to six years old, are largely funded, and are close to liquidity. Fresno County previously invested about $19 million in Landmark’s Private Equity Fund X.

The $2 billion county pension fund’s current private equity commitments total $310 million across 14 partnerships. The program mostly consists of buyout funds, but also includes venture capital and special situations funds.

The limited partner’s actual private equity allocation stood at 9.8% as of March 31, with a policy target of 11 percent. —Nancy Gordon

Pomona beats target

Pomona Capital closed its seventh secondary fund with $1.3 billion in late June, according to CEO Michael Granoff.

The New York-based firm raised $821 million for its previous secondary fund, Pomona Capital VI, which closed in 2005.

About 20% of Pomona Capital VII has already been invested, Granoff said. The manager of secondary funds, funds of funds and equity co-investments has bought interests in about 40 funds, using fund VII capital, he said. Most of its secondary investments are six to seven years old and almost 80% funded, he added. The lion’s share of the new fund’s investments are in smaller and mid-market buyout funds.

In addition to the copious amounts of fund interests available on the secondary market, Granoff said his firm is also looking at opportunities to acquire secondary interests in direct equity co-investments.

Noting the rising interest now in secondary funds, Granoff said, “The world has changed dramatically. This is the first time that we had people cold-calling us to ask if they could invest in the fund.”

Granoff noted that Pomona Capital has been flooded with new secondary deal opportunities.

“Last year we looked at over $40 billion in deal flow,” he said. “This year we are on track to look at maybe $100 billion in deal flow.” —Nancy Gordon