Who: CalPERS; CalSTRS
What: Building a database of emerging managers
Where: Seeking managers on a global basis
When: From the present until July 17, 2006
Why: Build portfolio diversity
How: Altura Capital is helping compile the database
via online questioners
One of the most common gripes from limited partners is that there are too many firms in the market and not enough time to look at them all. This seems especially true for the larger public pensions, which, because they have so much capital to invest, are the recipients of an endless stream of private placement memorandums.
With an overwhelming number of options, it’s easy for LPs to just stick with the proven GPs they already have relationships with. The tradeoff, however, is that by overlooking new opportunities, they may be turning down stellar returns in the future for more ease today.
Nonetheless, two of the largest public pensions, the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS), recently decided to take a proactive approach in identifying the smaller firms that may not have hit their radars. The two LPs, with the help investment advisor Altura Capital, committed to compile a database filled exclusively with emerging managers and financial service providers.
“There was big interest from both CIOs, especially Christopher Ailman at CalSTRS, to map out the universe of emerging managers,” Altura Capital CEO and President Monika Mantilla, told Buyouts. “There’s been a lot of talk about the space, but no comprehensive method of keeping track of who is actually out there… We are building a tool to help us locate new talent and new sources of alpha generation.”
The database will target much of the alternative universe, including private equity funds, private equity funds of funds, private real estate investments, REITs, hedge funds, hedge funds of funds, consultants and other areas. Firms fitting CalSTRS’ and CalPERS’ “emerging manager” criteria have until July 17, 2006 to complete an online questionnaire accessible via Altura’s website and join the database.
Since the project was first announced in April, emerging managers have been coming out of the woodwork. In about two weeks, Altura has gotten thousands of hits on its Website from users in the U.S., Japan, India, China, Switzerland and England looking to learn more about the database, Mantilla said.
“We originally were focusing strictly on the U.S. market,” she said. “We never expected anything close to the international attention we’ve received. It started just hours after we launched, and we view it as a manifestation of how the investment world has essentially become a small global community.”
With respect to private equity funds looking for a slot in the database, the participation criteria set by CalSTRS and CalPERS states that any PE firm looking to apply must have $600 million or less in assets under management for expansion and/or buyout funds, or $300 million or less for venture capital funds. Additionally, the current funds of interested parties cannot carry a Roman numeral higher than III, and employees at the firm must own at least 45% of the equity of the firm. The minimum requirements for emerging private equity managers state the firm must have a PPM in place and must be a legally structured entity with a corporate tax identification number (CTIN).
Private equity funds-of-funds, meanwhile, cannot have more than $2 billion of assets under management and their equity must be 45% employee-owned unless the fund is specifically focused on emerging private equity funds. The FoF minimum requirements also state that firms must have a PPM, or a similar proposal, in place in the event of a separate account relationship, and must be a legally structured body with a CTIN.
Mantilla said she expects the database to come away with between 500 and 1,000 firms by the time the sign-up window ends. CalSTRS and CalPERS will both have access to the full database, and will release a public version of it—sans performance data and other vitals to other limited partners, including endowments, corporations and other institutional investors.
“Many of these firms have simply not been heard of,” Mantilla said. “By being known to the broader LP community, it will promote an efficiency and transparency that will benefit everyone.”
A CalSTRS spokeswoman did not respond to interview requests by press time and CalPERS did not return phone calls. —A.N.