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LP Case Studies
Institutional investors across the country have generated strong financial returns from EDM-oriented private equity investments. This page highlights premier institutional investors leading the way.
Please select the following links (or scroll down) to see case studies for the following institutional investors:
California Public Employees Retirement System (CalPERS)
California State Teachers’ Retirement System (CalSTRS)
State of Connecticut
State of New York Common Retirement Fund
California Public Employees Retirement System (CalPERS)
http://www.calpers.ca.gov/
Bill Lockyer, California State Treasurer
CalPERS is the nation’s largest public pension fund with assets totaling more than $240 billion.
The System provides retirement and health benefits to approximately 1.5 million State and local public employees and their families.
CalPERS launched the California Initiative in November 2001 to invest in “traditionally underserved markets
primarily, but not exclusively, located in California.” The objective of the California Initiative is “to discover and invest in opportunities that may have been bypassed or not reviewed by other sources of investment capital.”
The California Initiative’s Phase I was launched in 2001 with a capital commitment of $475 million. In
October 2006, CalPERS announced a second allocation, a $500 million capital commitment managed by Hamilton Lane in an investment vehicle known as the Golden State Investment Fund.
As of February 2008, The California Initiative Program, generated $205 million in gains and funded over
217 companies ranging in size from three to more than 22,000 employees across a full spectrum of industries.
“In addition to generating attractive financial returns, the California Initiative is providing a number
of secondary benefits,” said Russell Read, Chief Investment Officer. “Capital is going to previously overlooked markets and companies that employ workers who live in economically disadvantaged areas. In addition, a number of these companies are led by women and minority entrepreneurs and managers.”
California Initiative partners in Phase I include: American River Ventures, DFJ Frontier, Garage Entrepreneurs
Fund, Leonard Green & Partners, Nogales Investors, Opportunity Capital Partners, Pacific Community Ventures, Provender Capital, Yucaipa Corporate Initiatives Fund, Banc of America Capital Access Fund (a fund of funds focused on underserved markets). The Golden State Investment Fund managed by Hamilton Lane includes as partners: DFJ Frontier, Levine Leichtman Capital, Pacific Community Ventures, and RLH Investors.
Source: CalPERS web site
California State Teachers’ Retirement System (CalSTRS)
http://www.calstrs.com
Bill Lockyer, California State Treasurer
The primary responsibility of CalSTRS is to provide retirement related benefits and services to teachers in public schools and community colleges. CalSTRS is the largest US teachers’ retirement fund, with assets of $169.2 billion as of April 30, 2008.
In October 2001, the CalSTRS board adopted the Policy on California Investments. The Policy on California Investments established a goal of investing 2% of CalSTRS assets in underserved markets, primarily in California. Per this Policy, “California emerging markets investments shall focus on investment opportunities in traditionally underserved markets primarily located in California. For example, underserved markets would include urban and rural communities undergoing, or in need of, revitalization where there are assets (e.g. an available labor pool, underutilized infrastructure, etc.) conducive to business development.”
In February 2002, the CalSTRS Investment Committee approved an implementation plan for investing in underserved urban and rural markets. The plan called for hiring fund-of-fund manager(s) with independent decision-making authority who in turn would commit to general partners. It also incorporated a newly created New and Next Generation Investment Program into the existing program for Urban and Rural Investing.
An initial allocation of $75 million was made to the CalSTRS/Banc of America Capital Access Fund (CBACAF) and $100 million to the New and Next Generation Managers Fund (NNGMF) managed by INVESCO Private Capital. CBACAF’s mandate requires that it primarily invests in funds serving underserved markets where people and places have historically lacked access to capital. NNGMF’s mandate provides that emerging managers, generally defined as first- and second-time institutional funds, be considered for an investment. NNGMF seeks to partner with top performing emerging managers based in the United States and aims to sponsor diverse general partners that represent the demographics of California.
In 2003, CalSTRS commissioned Pension Consulting Alliance, Inc. (PCA) to conduct a study regarding developing managers. The purpose of the research was to examine the equity marketplace in the United States to determine whether an allocation to small and/or new investment management firms have the same potential to deliver significant risk adjusted performance as mainline firms. PCA defined developing managers as any investment management firms with less than $2 billion under management and mainline managers as any investment managements firm with more than $2 billion under management.
PCA found that there is no broad-based difference between the risk adjusted performance of developing and mainline managers. Further, it described that many of the firms in this space are populated by talented, highly educated individuals who have developed their skill while working at some of the best, most well-respected financial institution in the world. It found that many of these men and women possess innovative strategies, have strong performance records, and most of all, possess an entrepreneurial spirit that keeps them on the path to excellence.
In August 2005, CalSTRS embarked on a ground-breaking approach committed to building a disciplined and comprehensive strategy to incorporate diversity into the management of CalSTRS investments. CalSTRS named this approach the Proactive Portfolio.
Under the Proactive Portfolio, CalSTRS established a separate private equity program and incorporated the urban and rural investments and emerging managers programs into the Proactive Portfolio private equity program The program had committed $735 million as of November 30, 2007. CalSTRS also initiated a side-by-side investment program where CalSTRS commits directly to funds. As of November 30, 2007, CalSTRS had 7 direct relationships with emerging and/or minority/women-owned firms and had committed $360 million to 8 funds through this program.
Sources: CalSTRS Web Site, CalSTRS “Diversity In The Management Of Investments” Semi-Annual Report Presented to the California State Teachers’ Retirement Board on November 1, 2007
Connecticut Retirement Plans and Trust Funds
http://www.state.ct.us/OTT
Connecticut State Treasurer Denise L. Nappier
The $26 billion Connecticut Retirement Plans and Trust Funds (CRPTF) is regarded as one of the nation’s top performing state pension funds. As principal fiduciary for CRPTF, which consists of six State pension and eight State trust funds, Connecticut State Treasurer Denise L. Nappier is responsible for prudently managing the retirement funds for approximately 160,000 teachers, state, and municipal employees who are pension plan participants and beneficiaries.
CRPTF was one of the first public pension funds to enter the private equity market and as of March 2008 had approximately $2.5 billion in capital committed to private equity. Its goal is to commit between $500 million and $600 million each year to private equity.
CRPTF has made more than $1.2 billion in private equity commitments to women and minority owned firms. These include fund-of-fund commitments to Fairview Capital Partners and Parish Capital and direct fund commitments to Smith Whiley, ICV Capital Partners, Nogales Investors and Syncom.
In April 2006, CRPTF adopted the Connecticut Retirement Plans and Trust Funds Diversity Principles. Per these Principles, Therefore, “it is in the CRPTF’s long term interest to seek increased diversity among its vendors in a manner similar to the way in which it seeks the diversification of its portfolio assets, consistent with the Treasurer’s fiduciary responsibilities.”
In fiscal year 2006, the State of Connecticut established $600 million Connecticut Horizon Fund investment program. The Connecticut Horizon Fund, a fund-of-funds program, “is designed to provide the CRPTF investment program with additional alpha through active management plus provide opportunity for investment managers who, for multiple reasons, would not typically have full access to the CRPTF.” The intent of CRPTF is “to afford opportunities for emerging, minority and women-owned and Connecticut-based investment managers to compete for investment contracts so long as such managers are fully capable of providing investment management services consistent with investment strategy and fiduciary standards.”
In addition, CRPTF will also pursue new innovative investment strategies which are being incubated at all types of firms via the Connecticut Horizon Fund. Per CRPTF, “in this way, the opportunity to enhance portfolio returns is greater and the spirit of nurturing the next generation of investment managers is expanded to include the next generation of investment ideas.”
Sources: State of Connecticut Treasurer’s Office web site, Connecticut Retirement Plans and Trust Funds Diversity Principles – April 2006
New York State Common Retirement Fund
http://www.osc.state.ny.us
New York State Comptroller Thomas P. DiNapoli
The New York State Common Retirement Fund (CRF) holds assets in trust for more than one million State employees and retirees, most local governments and some public authorities. State Comptroller Thomas P. DiNapoli is the sole trustee and manager of the CRF.
Since taking office, Comptroller DiNapoli has made it his primary objective to manage the $154.5 billion CRF in a manner that maximizes investments and provides security for employees through their golden years. He has instituted a number of reforms to make the CRF one of the most transparent and prudently managed public pension funds in the country.
The CRF’s 12.58 percent return for the 2006-07 state fiscal year exceeded the actuarial target return of 8 percent and the S&P 500’s benchmark return of 11.9 percent. The CRF’s exceptional performance enabled Comptroller DiNapoli to lower the contribution rates of the state and local governments and save taxpayers millions of dollars.
Since its inception, the CRF has made more than $826 million in private equity commitments to women and minority owned firms, including $190 million in commitments to five African-American-owned private equity emerging manager firms: ICV Capital Partners; Pharos Capital Group LLC; Syncom Venture Partners; Ascend Ventures; and Vista Equity. It also includes $115 million in commitments to four Latino-owned emerging manager firms: Bastion Capital; Palladium Equity Partners LLC; Nogales Investors Management LLC and RC Fontis Partners.
Through its Emerging Manager Program, launched in 2004, CRF has invested $475 million (as of April 2008). In October 2008, CRF announced that it would increase its private equity commitments to emerging managers to $1 billion over the next several years.
For the 2007 fiscal year, CRF’s entire private equity portfolio returned 28.7 percent, a significant driver in the fund’s overall 12.58 percent return. With considerable exposure to the large buyout area, the fund’s increased commitment to the private equity Emerging Manager Program is expected to help diversify its overall private equity portfolio.
Sources: New York State Office of the State Comptroller web site, “Stepping To The Plate,” Journal of EDM Finance, Spring 2008
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