LP Briefs, June 2010

NJ to Get Active After 2-Year Dry Spell

The New Jersey State Investment Council, which manages $67 billion for the state’s pension funds, will likely pledge $700 million to $1 billion to private equity in the next 12 to 15 months, Christine Pastore, head of private equity, said at a recent conference.

The state has not made a commitment since 2008, when it committed a little more than $2 billion to private equity.

Pastore said that unfunded commitments are “going out slowly,” which is why the LP hasn’t pledged in nearly two years. But she pointed out that because the pace of distributions has recently “picked up dramatically,” the pledge rate could accelerate.

Pastore indicated that New Jersey will be “very selective” in making pledges and will probably end up consolidating relationships with general partners. She’ll also be focusing on how general partners manage through this cycle and will look more closely at how they are compensated internally.

“Transaction fees are a thorn in my side, but monitoring fees are a knife in my head,” she said.

In other news, New Jersey recently began a search to replace William Clark, former director of the division of investment. Clark left to become the senior vice president and CIO at the Federal Reserve System’s Office of Employee Benefits, starting on March 1. —Nancy GordonOregon Nears High End of Target Range

Transaction fees are a thorn in my side, but monitoring fees are a knife in my head.”

Christine Pastore

The Oregon Investment Council, which manages about $68 billion in assets, has committed about $340 million to four private equity funds so far this year, pushing its actual allocation to the asset class up near the top of its allowable target range.

Oregon Investment Council’s actual allocation to private equity is 19%, said a spokesperson, above its 16% target, and close to the high end of its target range of 12% to 20 percent.

The state investment council recently made three pledges of $100 million each. One went to the second fund of Avista Capital Partners, which recently closed with $1.8 billion. A second went to U.K.-based Lion Capital’s Lion Capital Fund III, earmarked for investments in U.K. consumer-related businesses. The third went to Veritas Capital Fund IV, managed by Veritas Capital, a New York-based firm seeking up to $1.25 billion for its fourth fund to invest in mid-market companies.

The Oregon Investment Council also pledged $40 million to venture capital firm OrbiMed Advisors’ $550 million venture fund, Caduceus Private Investments IV. —Nancy Gordon

LPs Allow Diamond Castle to Proceed, But with Tougher Terms

The limited partners of Diamond Castle Holdings have voted to re-instate the investment period of Diamond Castle Partners IV, after the firm earlier this year voluntarily suspended investing upon the departure of co-founder, President and CEO Larry Schloss, who became the CIO of New York City’s five pension funds.

Prior to co-founding Diamond Castle in 2004, Schloss was global head of CSFB Private Equity.

Schloss’s departure triggered a key-person provision of the $1.8 billion Diamond Castle Partners IV, which closed in 2006 and is now more than 70% invested.

The re-instatement came with several GP concessions, including a deferral of the carried interest; an offset of 100% of fees against management fees; termination of the investment period if any of the four remaining founders depart; consultation with the LP advisory committee before investing in a new company; and a $150 million cap on follow-on investments after the investment period ends, according to a source familiar with the situation.

We have focused on several areas of the private equity market in sourcing ideas for investments this year.”

Vince Smith

The source added: “Those that had a negative perspective obviously viewed Schloss’s departure to be material and key. Sub-par investment performance might have also played a factor.”

The IRR for Diamond Castle’s fourth fund stood at –9.7%, with an investment multiple of 0.8x, as of Sept. 30, 2009, according to the Oregon Public Employees’ Retirement Fund.

Mike Ranger, senior managing director and co-founder of Diamond Castle, said that more than 57.5% of the LPs required to approve the re-instatement voted to do so. Also, a new key-person provision was drafted to include the four remaining founders—Ranger and Senior Managing Directors Ari Benacerraf, Andrew Rush and David Wittels.

Backers of the fund include the Canada Pension Plan, Chubb Corp., Cigna Corp., Ontario Teachers’ Pension Plan, the State of Minnesota, the State of Oregon and the World Bank. —Nancy Gordon

Kansas has up to $115M to Pledge

The $11 billion Kansas Public Employees Retirement System has up to $115 million to pledge to private equity this year, says CIO Vince Smith.

With an actual allocation of 3.4% to private equity and a target of 6%, the pension fund has plenty of room for more pledges.

“We have focused on several areas of the private equity market in sourcing ideas for investments this year,” says Smith, who adds that the state pension fund has recently made two commitments, although he declined to disclose the details until they officially close.

Kansas’s private equity program commits to venture capital funds in addition to buyout, growth equity, distressed debt, mezzanine debt, natural resources and secondary funds. The state re-started its private equity program in 2008 when it hired LP Capital Advisors, a non-discretionary private equity consultant. The program was put on hold in 2001, when the pension fund reached its allocation limit to the asset class. —Nancy Gordon