Bullish on a region marked by terror and a sinking economy, New York State Comptroller Alan Hevesi has pledged $200 million to private equity investments in Israel from the New York State Common Retirement Fund. Half of the amount will anchor a new $250 million fund by Markstone Capital Partners. Markstone plans to invest in both public and private Israeli companies. The firm is an offshoot of Los Angeles’ Broidy Capital Partners, a private equity firm managed by financier and Republican party socialite Elliot Broidy.
New York’s commitment is good news for Israel. Venture capital investing in Israel is off nearly 50% this year.
Although it has not set a roadmap for its investments in the region, New York has indicated it would shy away from high-tech investments in Israel in favor of Old Economy industries like manufacturing, retail and utilities. Markstone also has no plans to invest in technology deals.
Hevesi visited Israel in March and made another trip there in 1998 when he was Comptroller of the City of New York. He has been a longtime supporter of Israel, making appearances in New York City at pro-Israel rallies.
Hevesi is the sole trustee of New York State’s $98 billion pension fund, overseeing its strategy and investment plan. Almost 6% of the fund’s assets are invested in private equity. About $609 million of the amount sits in international private equity funds. It has another $696 million invested in Israeli government bonds. –Carolina Braunschweig
CoPERA Cuts PE Allocation
The Colorado Public Employees’ Retirement System (CoPERA) plans to pull $800 million out of private equity, reducing its exposure to the asset class from $2.7 billion to $1.9 billion over the next several years.
Its strategy, formalized by the pension fund’s new deputy executive director of investments, Jennifer Paquette, is to bring the pension fund’s private equity allocation to 8%, says Katie Kaufmanis, a CoPERA spokeswoman. More than 11% of the $23.6 billion fund’s assets currently sit in private equity funds, pushing the pension plan’s investments in the sector above its target range.
CoPERA has not made any new private equity investments this year, reflecting the pension fund’s desire to scale back and a lack of attractive investment opportunities, Kaufmanis says.
CoPERA is a diversified private equity investor, with commitments to funds managed by Columbia Capital, Enterprise Partners, Forstmann Little & Co., HarbourVest Partners and Walden International.
The pension fund provides retirement and other benefits to the employees of more than 380 government agencies and public entities in the state of Colorado. It is the 23rd largest public pension plan in the United States and the 48th largest public pension plan in the world. –Carolina Braunschweig
Kentucky Hungry for VC
Louisville, Ky., Mayor Jerry Abramson is gearing up to present the board members of the Kentucky Retirement System and the Teachers Retirement System of Kentucky with a proposal for both plans to allocate a combined 2% to 3% of their assets, or approximately $750 million, to venture capital investments.
The proposal is based on the mayor’s desire to foster more entrepreneurial efforts in Kentucky.
But the mayor’s efforts may be for naught. A statement by the Kentucky Retirement System board of trustees says that the board could oppose any legislative mandate that would require the board to make such investments. “The Board recognizes its fiduciary duty not only to invest the funds in formal compliance with the Prudent Person Rule, but also to manage the funds in continued recognition of the basic long-term nature of the systems. This is accomplished through a policy of preserving capital, while seeking means of enhancing revenue and protecting against undue losses in any particular investment area. In order to maintain quality while maximizing the long-range return, the Board diversifies the investment of the assets among classes of securities.”
Bob Leggett, chief investment officer for the Kentucky Retirement System, declined to make further comment.
Jay Blanton, the mayor’s deputy press secretary, touted venture capital as a good investment. “The allocation that the mayor is proposing is minimal,” he says. “Once the board members hear all the details of the proposal it will be received warmly and they will act on it.” –Arnella J. Forde
Reprinted with permission from Investment Management Weekly.
Cross-Atlantic Private Equity Boom
Private equity fund managers around the globe are dusting off their resumes as the London Pensions Fund Authority (LPFA) plans to move some of its assets into private equity. It plans to put 5%, or $245 million, of its $4.9 billion in assets into private equity.
The United Kingdom may not be the prime beneficiary of the LPFA’s investments, as the authority has retained a consulting firm that typically recommends U.S.-heavy investing, and the LPFA has already said it will send a good deal of its investment dollars across the Atlantic.
The LPFA is one of the largest local government pension providers in England, and the largest in the country’s capital, with more than 70,000 fund members. Its decision to channel some of its assets into private equity coincided with the British Venture Capital Association’s revelation that U.K. pension plans halved their investments in the asset class during 2002. The BVCA, which represents a large part of the U.K.’s private equity and venture capital community, says that investments slipped from $2.6 billion in 2001 to to $1.3 billion last year.
A list of leading candidates for a piece of the $245 million would surely include giants such as Chicago-based Adams Street Partners and HarbourVest Partners, which is headquartered in Boston. That’s not to say that U.K. private equity houses are off limits. Pantheon Ventures of London is a contender: the firm raised $584 million-more than double its target-from new clients for its latest vehicle, Europe Fund III. Westport Investments is another contender. Its Westport Select Cap Fund has returned 8.18% on an average annual basis since its inception in 1998. All of these firms would meet the LPFA’s requirements in that they have strong research databases that keep them abreast of the available funds around the globe. -Mairin Burns
Reprinted with permission from Investor Dealers’ Digest.
SFSERS Switches To Portfolio Advisors
The San Francisco Employees’ Retirement System (SFSERS) in May ended its 14-year relationship with Boston’s Cambridge Associates in favor of a new one with Darien, Conn.-based Portfolio Advisors.
The value of the pension fund’s $1.2 billion private equity portfolio has taken a hit recently. It lost 8.2% of its value last year, according to SFSERS’ 2002 annual report. Despite the loss, its three-year return still stood at 14%.
Advisor and fund-of-funds manager Portfolio Advisors will provide the $10.4 billion pension fund with an investment strategy and scout investment opportunities. SFSERS allocates 12% of its portfolio to private equity investments.
No word on how Portfolio Advisors will change the pension fund’s investment strategy. Neither SFSERS nor Portfolio Advisors returned calls seeking comment.
Although SFSERS’ portfolio is dominated by buyout funds, with commitments to funds managed by Horsley Bridge Partners, Madison Dearborn Partners and Thomas H. Lee Partners, the pension fund has also invested in a handful of venture capital funds. Its venture portfolio includes commitments to Apax Partners, Grotech Capital Group, Morgenthaler Ventures and Worldview Technology Partners. –Carolina Braunschweig
California and Illinois Pension Funds Seek Managers
The search is on for a fund-of funds manager at the California State Teachers’ Retirement System (CalSTRS). Last week the pension fund issued an RFP asking qualified groups to submit proposals for a $100 million mandate to run its New and Next Generation Managers Program.
In late February the Sacramento-based pension fund set aside $100 million to invest in private equity funds managed by young and emerging partnerships (see “CalSTRS Readies for Next Generation,” PE Week, 3/3/03). Although CalSTRS currently manages a $4.6 billion private equity portfolio, accounting for 4% of the pension fund’s $95 billion portfolio, it plans to double the value of that portfolio and commit $11 billion to the asset class by 2006. So it’s trying to get in early with fund managers that may become the next-generation of top-tier investors. It’s planning to invest in funds managed by new partnerships spun out of bellwether firms, young firms raising their second fund, or experienced general partners raising their first institutional fund.
CalSTRS will select one or two firms to build, manage and liquidate the emerging managers program and have full discretion over the $100 million portfolio. The RFP’s closing date is July 7.
In similar news, the $570 million Chicago (IL) Park Employees A&B Fund is at the beginning stages of a search for a private equity fund-of-funds manager to oversee a 5% or $28 million allocation to the sector.
Consultant Ennis Knupp & Associates is expected to begin to begin the search this week. Interested managers are being advised to contact Ennis Knupp directly.
A decision on exactly which type of private equity to invest in is still being discussed by the fund’s board, which understands that it has committed to “a very aggressive investment category,” says Joseph Fratto, the fund’s executive director. The strengths and weaknesses of the private equity fund-of-funds manager candidates presented to the board will play a key role in bringing the board to a decision concerning whether or not the private equity investment will be venture capital, hedge funds, mezzanine funding, or some other private equity sub-category.
The private equity search is a direct result of a recent asset liability study of the plan by Ennis Knupp. The study spurred a 5% target increase in exposure to international equity, but the board has no intention at this time to search for a new international equity manager, Fratto says, adding that all the changes to the plan’s allocation were based on a desire by the board to see. “diversification within traditional categories.” -Carolina Braunschweig./Dan Neel of IMW