South Carolina LookS for More VC Exposure

By Nancy Gordon, Buyouts magazine

What private equity sub-sectors look interesting to you now?

A: We don’t have any particular sector focus now. We were first allowed to invest in private equity in 2007 and now have a target allocation to the asset class of 7 percent. So far, we’ve funded 4 percent of our $23 billion plan in private equity. I’ve just wrapped up a gap analysis, so there are areas I’m looking at, not necessarily opportunistically, but because we’ve got gaps in the program. For example, growth equity and venture capital are areas where we could possibly use some more exposure. We’ve already got some good secondary relationships, but we’d consider a little more in that area. I don’t have much exposure to Asia at this point, and Asia tends to be growth-equity-like so that might actually end up overlapping to fill some voids and help us build a more diversified portfolio. We have some exposure to Europe through a fund of funds and a couple of direct private equity funds, but it’s conceivable I could do more there.

Q: Do you work with a consultant?

A: We work in partnership with New England Pension Consultant. Each of us sources private equity investment ideas, which are then independently diligenced prior to approval.

Q: You committed to South Carolina-based Azalea Capital and North Carolina-based Carousel Capital. Are you looking to commit to more regional private equity firms?

A: Our investment mandate requires that we find the best investments we can to serve our retirees. There’s no feeling here that we should be concentrating heavily in South Carolina just because that’s where we’re located. We believe there are some excellent investment opportunities in South Carolina. It’s an underserved market for private equity, so we do plan to focus some attention on this market.

Q: Are you looking to find some new GPs or will you stick with re-ups?

A: We’ve been somewhat on hold with our private equity investing for a year now regarding new ideas. So the only new relationship I’ve established is with Azalea. The other commitments were re-ups with existing managers. I’ve got a few re-ups that I’m looking at for this fall. I’m not averse to new ideas. It’s that I also cover public equity here, so I’ve spent most of the past year focusing on that and couldn’t spend a lot of time looking at new private equity ideas.

Q: What are some of the biggest challenges you face today?

A: Being that we’re a state agency, we have limited resources to do everything we might like to do. Because the commission was founded just five years ago, recent state budgetary pressures have suppressed the natural growth the commission might otherwise have had.