The Empire State wants to get out from under the caps commonly placed on private equity investments.
A bill recently proposed in the state senate would eliminate the alternative investment allocation cap from the New York State Common Retirement Fund and allow the fund’s investors to use their better judgment with regard to PE investments.’
The Common Retirement Fund has $119 billion under management and is a limited partner in funds managed by Apollo Management, Blackstone Capital Partners, HarbourVest Partners, J.P. Morgan, Lexington Partners, Menlo Ventures, Sprout Capital and Warburg Pincus.
In a memorandum accompanying the proposed bill, New York State Comptroller Alan Hevesi notes that the fund was forced to reduce its private equity commitments in 2002 or risk violating its allocation cap as public equities fell in value.
In the five years between 1999 and 2003, the Common Retirement Fund would have generated between $4 billion and $5 billion more in returns had it been able to allocate more to alternative investments, according to Hevesi.
In the past, the alternative asset cap for the Common Retirement Fund has been moved up instead of eliminated. In 1987, it was moved from 5% to 7.5%; in 1997, it was moved to its current 15% allocation.
“It has been the comptroller’s position that we should not have caps but go by the principal of the prudent investor,” says John Chartier, a spokesman for the comptroller’s office. “We’re asking that these caps be removed and the investment mangers be allowed to make decisions.”
The comptroller’s memorandum that supports the bill calls New York State’s current approach “outdated” and cites examples of other large pension plans, most of which either use the prudent investor standard or have less restrictive legal lists than the Common Retirement Fund.
The New York bill is still in its early stages and as of April 18 had advanced to its third reading. A companion bill will have to pass in the state assembly before being sent to the governor. A spokesman from Gov. George Pataki’s office declined to comment on the bill.
New York joins other states in moving toward a standard method of pension fund alternative investment management of using outside managers and less rigid allocation rules. In April, Mississippi’s governor signed into law a bill that allows the $16 billion Public Employees Retirement System of Mississippi to invest in alternative assets. Meanwhile, the New Jersey State Investment Council approved a plan to invest 13% of its $66 billion in assets into alternative investments. The plan would allocate 5%, or about $3.3 billion, of its assets to private equity.
On April 5, New Mexico Gov. Bill Richardson signed into law legislation that allows the state’s three pension funds to invest more freely in alternative assets, including private equity. (New Mexico’s pension funds are the $6.7 billion New Mexico Educational Retirement Board, the $10 billion Public Employees Retirement Association and the $12 billion State Investment Council.)
Penn. Pensions Settle Suit
A political and legal battle that has spanned nearly three years, two elections and numerous appearances in court is finally over in Pennsylvania.
The Pennsylvania Public School Employees’ Retirement System (PSERS) and the State Employees Retirement System (SERS) have reached a settlement with the state auditor general’s office, led by Jack Wagner. The settlement ends a dispute over the right to audit the pensions. The dispute was between the auditor general’s office and the two pensions that began under Wagner’s predecessor, Robert Casey Jr.
Under the settlement agreement, the auditor general’s office will conduct a special performance audit of both pensions and enter into a contract with Washington D.C.-based Independent Fiduciary Services to conduct a fiduciary review of the funds’ investment operations. They each will submit separate reports, which will be open to review and comment.
Also under the agreement, both pension funds will withdraw pending Pennsylvania Supreme Court appeals of last year’s Commonwealth Court ruling. The ruling handed Casey, who was then auditor general, the key victory in his fight to conduct a special performance audit on the two state retirement funds. The panel of seven judges (with one dissenting) ruled in October that the auditor general’s office has the authority to conduct the audit and ordered the two funds to provide necessary documents and otherwise cooperate with the audit.
The battle over the right to audit SERS and PSERS has raged for about three years. Casey began his quest to conduct one in August 2002, following the retirement systems’ use of 150 outside consultants and investment advisors.
PSERS manages about $52 billion and has invested in Adams Street Partners, Landmark Partners, Madison Dearborn Partners, Spectrum Equity Investors and TA Associates. SERS manages about $26.6 billion and its portfolio includes Apax Partners, Blackstone Capital Partners, HarbourVest Partners, Lexington Partners, New Enterprise Associates and Summit Partners.
Pacific Corporate Group (PCG) is separating its advisory business from its direct investing business.
Monte Brem will run the advisory group (PCG Asset Management), while PCG founder and CEO Chris Bower will run the direct investment group (PCG Capital Partners). The units will report to the PCG board, comprised of remaining partners Bower, Brem, Stephen Moseley, Tara Blackburn, Tim Kelleher and Philip Posner.
The rationale behind the shake up is that client needs have evolved and that PCG is keeping pace in a way that will provide increased focus and dedication.
Still, PCG has had its share of turnover. At least three pros-Craig White, Eric Becker and Rick Fratus-have resigned this year. In addition, Scott Vollmer is continuing to manage a special situation fund-of-funds in association with PCG, but is no longer a PCG partner nor employee.
CalPERS Taps Manager
CalPERS has once again picked Santa Monica, Calif.-based Wilshire Associates as the primary pension consultant to its $182 billion fund.
The April decision wasn’t a surprise. Wilshire has served the California Public Employees’ Retirement System in that capacity for the past 22 years. Wilshire is credited with overseeing CalPERS’ Permissible Market Equity Policy and authoring a study on the effects of the pension fund’s policies. The latest agreement is a three-year contract, effective July 1, and comes with the option of two one-year extensions. CalPERS says that the contract with Wilshire is subject to final negotiations of fees, terms and conditions.
In addition to naming Wilshire its primary pension consultant, CalPERS plans to allow more investments around the globe. It has added Argentina, Sri Lanka, Thailand and Turkey to its list of permissible emerging equity markets.
The list of forbidden countries is based on political stability, transparency and labor practices. CalPERS cited Sri Lanka’s political improvements and Thailand’s expanded market capitalization as reasons why they are no longer forbidden from investments.
Countries forbidden for investment by CalPERS are Colombia, China, Egypt, Indonesia, Morocco, Pakistan, Russia and Venezuela.
CSFB To Manage for Michigan
Credit Suisse First Boston will manage the state of Michigan’s Venture Michigan Fund program. Michigan began the search for a fund manager in the summer of 2004. The Venture Michigan Fund is a $150 million fund of funds. It invests in venture funds that back startup tech companies in the Wolverine State.
OTTP, MassPRIM People Moves
The Ontario Teachers’ Pension Plan has promoted Mark Wiseman to vice president of funds and investments. Since joining OTPP in 2002, Wiseman has been responsible for all direct and indirect private equity commitments. In other OTPP news, the group promoted Rosemarie McClean to VP of member services and promoted Ron Lepin to VP of infrastructure
Stanley Mayromates has been named CIO of MassPRIM, the Massachusetts Pension Reserves Investment Management Board. He previously served as a deputy CIO. Mayromates replaces Jerrold Mitchell, who announced his intention to retire late last year.
Additional reporting by Dan Primack.