LP Briefs, July 2009

Lehigh University commits $14M

Lehigh University’s $870 million endowment fund has committed $14 million combined to two private equity funds so far this year, although the limited partner declined to name them.

The endowment’s current allocation to private equity is about 9 percent. Last year, the LP raised its private equity target allocation from 3% to 15%, with a range of 5% to 20 percent.

Lehigh University anticipates reaching its goal for the asset class within the next five years, but has no target amount to invest per year, says CIO Peter Gilbert. The university’s investments in private equity are opportunistic, depending on the fund-raising cycles of managers and its own ability to gain access to targeted high-quality managers.

“We are pretty happy with [our] manager relationships right now,” Gilbert says.

Lehigh University has previously backed HarbourVest Partners’ generalist buyout fund, HarbourVest International Private Equity Partners III-Direct, and a biotech-focused fund managed by MBW Management Inc.

Gilbert joined Lehigh as the endowment’s first CIO in August 2007 after running investments for the Pennsylvania State Employees’ Retirement System for 14 years.

At PennSERS, he assembled the largest hedge fund portfolio of any state retirement system. Before that, Gilbert was director of the Mayor’s Pension Unit in the City of New York’s Department of Finance from 1990 to 1993, and he previously worked for a decade in the City of New York’s Office of the Comptroller.

As of June 30, 2008, Lehigh ranked 65th in endowment size among 791 institutions, up from 72nd in 2007 among 785 institutions, according to the National Association of College and University Business Officers.—Nancy GordonLouisiana State severs ties with Aldus Equity

The $8.7 billion Louisiana State Employees Retirement System recently terminated its relationship with Aldus Equity Partners over its involvement in an alleged kickback scandal involving the New York State Common Retirement Fund.

In April, the Securities and Exchange Commission filed charges against Aldus and Saul Meyer, its founding principal, in an alleged scheme to win business from New York Common. In a parallel criminal action, New York State Attorney General Andrew Cuomo filed a criminal complaint against Meyer.

The Louisiana State pension fund had about $125 million committed via its relationship with Aldus Equity.

“Aldus has handled some private equity investments which proved very successful for the system and its members and the state of Louisiana,” said Cynthia Rougeou, executive director of the state pension fund, in a prepared statement. “However, once the allegations involving Meyer surfaced, we immediately suspended any new activity with Aldus and asked for their letter of resignation, which we have received.”

The pension fund is working with a consultant and is in discussions with other private equity firms about managing the investments going forward.

Similar to Louisiana State, the New Mexico State Investment Council and the Oklahoma Teachers Retirement System have also recently ended their relationships with Aldus. —Nancy Gordon

New Mexico bans use of placement agents

New Mexico Gov. Bill Richardson and the New Mexico State Investment Council have instituted a new policy that bans investments with money managers who use third-party placement agents. Additionally, the limited partner now requires disclosure of all payments made in relation to its investments.

The developments come in the wake of the pay-to-play scandal involving the New York State Common Retirement Fund.

The policy also prohibits managers or contract holders from making campaign contributions to elected or appointed officials who may have influence over the New Mexico State Investment Council or its advisory and oversight boards for the full term of the investment, as well as for two years before.

Penalties call for the New Mexico State Investment Council to recoup damages and repayment of management fees from any manager who does not fully disclose a financial benefit to individuals related to a state investment. These penalties bolster the law enacted last month that made failure to disclose third-party marketers a felony in New Mexico. —Nancy Gordon

NY pension cuts its FoF

New York State’s pension fund has cut its fund-of-funds investments to about $500 million from $5 billion since January 2008, after deciding direct investments were preferable, according to a spokesman. Fund-of-funds helped the state gain access to “blue chip” funds when former Comptroller Alan Hevesi began using them in 2005, said Robert Whalen, a spokesman for current Comptroller Thomas DiNapoli.

DiNapoli determined after a review that the strategy of investing in 184 funds through seven fund-of-funds was “suboptimal” due to redundant investments, unwanted correlations between the funds’ results and the stock market’s performance, and costly fees, Whalen explained.

Clipping some of these fund managers has a side benefit. Placement agents who have been hired by them and who have been swept up in the ongoing pension kickback probe can no longer collect ongoing fees.

DiNapoli is still reviewing all transactions that took place under Hevesi. —Joan Grallam, Reuters

Indiana Teachers pledges $8M to TA Associates

The Indiana State Teachers’ Retirement Fund has pledged $8 million combined to two separate funds managed by Boston-based TA Associates.

The state pension fund agreed to commit $5 million to TA XI. The fund, which is targeted at $3.6 billion, invests in technology, financial services, health care, business services and consumer sectors. TA Associates’ previous buyout fund, TA X, closed with $3.5 billion in commitments in March 2006. Fund X had an IRR of negative 13.1% as of Sept. 30, 2008, according to data provided by the California Public Employees’ Retirement System.

Indiana Teachers also pledged $3 million to TA Subordinated Debt Fund III, which provides subordinated loans to mid-market growth companies. —Nancy Gordon

Alaska pledges $500M for fiscal 2010

The Alaska Permanent Fund Corp. approved a new private equity investment policy resolution in late May that includes a $500 million commitment for its fiscal year 2010, which begins July 1.

The amount will be divided between Boston-based HarbourVest Partners, a fund-of-funds manager hired in December to oversee a global private equity portfolio, and Pathway Capital Management, an Irvine, Calif.-based firm that currently manages two private equity portfolios for the limited partner. The exact split between the two managers hasn’t been worked out yet, says Laura Achee, spokesperson for the LP.

The LP’s target allocation to private equity is 6 percent. The actual private equity allocation stood at 2.4% as of April 30. —Nancy GordonCPPIB assets shrink

The Canada Pension Plan Investment Board announced in May that the value of its assets under management shrank 14% in fiscal 2009, which ended March 31. CPPIB, which manages Canada’s national pension fund, said it had assets of about $95 billion for fiscal year 2009, down $15 billion from fiscal 2008.

CEO David Denison said that the fund’s losses were linked to declines in equity markets, both public and private.

“Clearly fiscal 2009 was an extremely difficult year for the fund that we manage,” Denison said on a conference call after results were released. —Pav Jordan, Reuters