The United State’s largest state pension system ended its investment year with a bang, committing almost $1 billion to private equity. The California Public Employees’ Retirement System (CalPERS) reported at its Dec. 12, Investment Committee meeting that it had invested $956.5 million into five different private equity funds.
CalPERS reported that it has committed to invest in the following private equity funds:
*$400 million to The Blackstone Group’s Blackstone Capital Partners V. The fund closed on $12 billion in October. The fund will focus on large cap buyout transactions in the United States and Europe. Blackstone Partners IV was closed in 2003 with approximately $6.5 billion. Blackstone, a New York-based investment firm, manages more than $34 billion in assets.
*The pension system made a commitment to London-based Candover Investments of $179 million for The Candover 2005 Fund. Candover has a goal of $3.6 billion for the fund, which will make equity investments of between $60 million and $600 million. The fund will focus on buyouts of middle-market public and private companies with enterprise values of between $180 million and $1.8 billion. Candover manages capital that totals about $6.2 billion.
*$175 million to Welsh Carson Anderson & Stowe’s new fund, Welsh Carson Anderson & Stowe X. The firm has a $3.5 billion target for the fund, which will make controlling buyouts of business services, communication, healthcare and IT companies. The New York-based firm has more than $12 billion under management.
*$150 million to Avenue Special Situations Fund IV, managed by Avenue Capital Partners. The New York-based firm has a first close on the fund last month with $702 million and expects to have a final close before the end of the month with $1.675 billion. The fund will invest in debt securities and other distressed European and U.S.-based middle market companies. Avenue Special Situations Fund III closed in 2002 with $470 million. The firm manages $6.8 billion.
*$52.5 million to Rosewood Capital’s fifth venture fund, Rosewood Capital V. The San Francisco-based firm will use the fund to make non-controlling investments of between $25 million and $150 million in specialty-retail and consumer companies. Rosewood is seeking up to $350 million for the fund.
Grove Street Advisors advised the pension system on its investment in Rosewood. Hamilton Lane advised CalPERS on its investments in Blackstone, Candover and Welsh Carson Anderson & Stowe. LP Capital Advisors advised the pension system on its investment in Avenue.
In addition to fund investments, CalPERS also announced that its total assets had topped the $200 million mark for the first time in its history. As of Nov. 21, CalPERS’ net asset value stood at $200.1 billion.
CalPERS also announced that it hired Fiderion Financial Services Group to conduct a search for a new chief investment officer. Previous Chief Investment Officer Mark Anson quit the pension system to become the CEO of London-based fund manger Hermes. In November, CalPERS named Anne Stausboll as interim chief investment officer.
During the same meeting CalPERS also approved a plan that could send some of its private equity holdings to the secondary market. The move comes as part of a larger restructuring of the CalPERS private equity portfolio.
The CalPERS Investment Committee approved a proposed action plan to overhaul the structure and management of the Alternative Investment Management (AIM) program. The plan calls for the $200 billion pension system to reduce the number of private equity relationships it manages and realign its management structure.
CalPERS will essentially divide its alternative assets portfolio into five. Its core portfolio will consist of approximately 20 to 30 already-existing private equity firm relationships. It will also have a prospective core portfolio of between 30 and 40 existing and new relationships, a more developed co-investment portfolio, and a portfolio of “discretionary vehicles” comprised of third party managers making smaller investments.
The fifth part of the revamped CalPERS AIM structure would be a legacy portfolio that would consist of “non-core relationships, underperforming management teams, and retiring relationships.” It is this legacy portfolio that presents the more opportunity to secondary buyers, and CalPERS intends for it to be managed by a third party. It has set out to “retire” funds not performing up to par and “explore opportunities to sell investments in the secondary market” over the next three years.
CalPERS will likely hand over much of its private equity management to established advisors and other third party investors. The size and number of assets it will put on the secondary market has yet to be determined. The CalPERS investment staff will report back to the Investment Committee by the second quarter of 2006 to identify which assets that would be placed in the legacy portfolio and assign a third party to monitor and manage them.