LP Briefs, May 2009

Secondary buyers outnumber sellers

Secondary LP stakes are currently such a hot commodity that buyer interest outweighs seller interest, according to a survey from Preqin, a London-based alternative assets research firm. About 43% of 220 institutional investors say they’ll consider buying secondary stakes this year, as opposed to just 10% who say they’ll consider selling, according to the 2009 Preqin Global Private Equity Review.

The results of the study are a surprise, considering the recent talk of over-saturated markets full of desperate sellers with near-worthless portfolios. But the study points out that many sales in the secondary market are a response to liquidity needs, rather than an overall reduction of target allocations or an exodus from private equity as an asset class.

Gaining liquidity was the most popular reason given as to why sellers are unloading—with the denominator effect, rebalancing portfolios and the desire to exit poorly performing funds among the other responses. The largest group of sellers included public pension funds (28%), followed by private sector funds (42%), insurance companies (17%) and endowments (12%).

“Over the course of 2009, we predict that the number of secondary sales will increase, with both buyer and seller confidence being buoyed by new fund valuations coming into play,” says Tim Friedman, a Preqin spokesperson.

Interest in the secondary market is not limited to the most experienced investors. Although more than one-fourth of potential buyers hold portfolios of 100 funds or more, 28% of the buyers hold stakes in 10 or fewer funds. —Erin Griffith and ReutersNY Teachers fills postDhvani Shah, a former vice president at Bank of America in Chicago, has joined the $75 billion New York State Teachers Retirement System as the manager of private equity. The position became available in July after David Felix left.

Shah will oversee 58 general partner relationships and more than 100 different funds in NYSTRS’s program, with commitments totaling about $11 billion. The LP, which invests in buyout, venture capital, international and special situation funds, has a target allocation to the asset class of 5%, with a range between 2% and 10 percent.

The hiring of Shah leaves at least six top private equity positions still unfilled nationwide. Unfilled openings include the director of the private equity program for the California State Teachers’ Retirement System; principal investment officer of private equity at Connecticut Retirement Plans and Trust Funds; senior private equity manager at Harvard Management Co.; senior alternative investments officer at Illinois Teachers’ Retirement System; director of private equity at New York State Common Retirement Fund; and deputy director of investments at Ohio Public Employees’ Retirement System. —Nancy Gordon

Maine picks consultant, executive director

The Maine Public Employees’ Retirement System has hired Marina del Rey, Calif.-based Cliffwater as its private equity consultant, according to Andrew Sawyer, CIO of the state pension fund.

Sawyer says Maine’s investment pace and allocation are still being discussed. The limited partner is looking into buying on the secondary market, for which it “might still have some appetite,” says Sawyer, who joined the LP a year ago and created the private equity program.

In other news, the state pension fund named Sandra Matheson as the system’s new executive director. She started on April 1. Previously, Matheson served as director of the State of Washington’s Department of Retirement Systems and a board member of the Washington State Investment Board. She replaced Gail Drake Wright, who retired in February. —Nancy Gordon

Vanterra details strategy

Shad Azimi, founder and managing partner of New York-based Vanterra Capital, says the firm plans to commit to eight to 10 funds through fund of funds. The firm, founded by Azimi, a former principal with New York Life Capital Partners, will pledge to health care, energy services and distressed funds and companies in the United States and Asia. Typical fund pledges will run between $20 million and $50 million.

The firm has already committed $20 million to the NYLIM Jacob Ballas India Fund III, a $440 million vehicle that closed in January. Azimi began his relationship with fund manager Jacob Ballas Capital India during his tenure while at New York Life Capital Partners, which seeded the manager. —Nancy Gordon

New Mexico LP to pledge $360M

The $6.6 billion New Mexico Educational Retirement Board plans to commit $360 million to private equity in 2009, according to Bob Jacksha, the pension fund’s chief information officer. The LP expects to put half of its investment into buyout funds, 21% into special situations, 19% into mezzanine funds, and 10% into venture capital funds.

The state pension fund’s commitments to the asset class totaled $595 million as of Dec. 31, but only $155 million, or 2.3% of total assets, has been drawn down. Separately, the state has pledged $150 million to private equity co-investments, although none of that amount has been drawn down yet.

Recent commitments include $40 million to Veronis Suhler Stevenson’s VSS Structured Capital II, a $300 million mezzanine fund. The state pension fund also pledged $30 million to debut fund Lee Equity Partners Fund, which is seeking more than $1.5 billion. —Nancy GordonTRS backs first Asian fund

The Teachers’ Retirement System of the State of Illinois has made its first pledge to an Asia-focused private equity. It committed $25 million to MBK Partners Fund II in February.

MBK Partners is targeting between $2 billion and $2.5 billion for its second fund, which it began marketing in April 2008, to make investments in China, Hong Kong, Japan, Korea and Taiwan.

The pledge to MBK most likely won’t be the last from Illinois, which is dipping its toe into the waters of international private equity. Spokesperson Eva Goltermann noted that the pension fund is looking at other overseas pledges, and hopes to make subsequent commitments to MBK.

Last year, the LP made its first European commitment when it pledged $75 million to PAI Europe V, which specializes in medium-to-large European buyout deals. —Nancy Gordon

Texas ERS has lots to spend

The Employees Retirement System of Texas is looking to commit at least $1 billion to private equity in its fiscal year 2009, which began on Sept. 1, 2008. Currently, the program has 10 commitments totaling about $750 million.

The limited partner is considering top-quartile buyout and growth equity, secondary, distressed debt and mezzanine funds, according to Patrick O’Hara, director of private equity, who came on board in June 2008. Since 2007, pledges include $45.3 million to Advent International Corp.’s Advent International GPE VI; $37.5 million to Brazos Private Equity Partners’ Brazos Equity Fund III for mid-market companies in the Southwestern United States.; $100 million to The Carlyle Group’s mega-buyout fund Carlyle Partners V; and $65 million to Wind Point Partners’ Wind Point Partners VII for acquiring mid-sized businesses in the business services, consumer products, health care, industrial products and media industries. —Nancy GordonMaryland LP sets target

The $2.6 billion Montgomery County Employee Retirement Plans in Maryland is targeting a total commitment of $50 million to $70 million to private equity this year, although its board intends to re-evaluate the commitment pace later this year.

The limited partner started committing to private equity in 2003. About two-thirds of its investments are in buyout funds, with most of the remainder in venture funds, and a small amount in special situations and distressed/mezzanine vehicles.

Last year, the county pension fund committed $30 million to Adams Street Partners’ global fund of funds and $25 million to Pomona Capital’s secondary fund of funds. —Nancy Gordon