Close To Target, Hawaii Explores Changes

The $10 billion Hawaii Employees’ Retirement System recently directed its CIO Rod June to prepare a comprehensive report on the state’s private equity expansion and restructuring, with an eye to achieving greater performance from the asset class.

“As far as the target allocations for the next several years, we will be addressing the denominator effect and its impact on our commitment pacing in the report,” said June. He added that as of September 30, 2008, Hawaii was close to its target for private equity of 3.5 percent, or $375 million.

The report will tackle four themes: increasing the program’s target allocation; gaining greater access to top-quartile and higher-performing funds; accessing specialized and non-traditional funds; and gaining exposure to developing countries and regions.

In August, June told Buyouts that he wanted to gain board approval to double the target allocation to private equity over the next five years and that such a move would likely include expanding the state’s exposure to non-U.S. private equity in 2009. Thus, a recommendation to commit to non-U.S. private equity will likely be suggested in the upcoming report.

“We want to commit no less than $115 million annually starting in 2008,” said June in August. “Ideally, we would like to see commitments of $120 million in 2009, $130 million in 2010 and $140 million each in 2011 and 2012.” Regarding those plans, June said that nothing has changed with respect to Hawaii’s desire to make those commitments. But June may soon ask Abbott Capital Management, an advisor to the retirment fund, if the current environment will allow commitments to continue at that pace. June noted that the LP is slightly over its private equity target, given the denominator effect, and that they are monitoring this situation closely.

June declined to name any commitments made this year but noted that private equity commitments have not been discontinued pending the report, which the board requested at its November 10 meeting. Funds that the limited partner backed in 2007 include Battery Ventures VIII, Eos Capital Partners IV, Green Equity Investors V, Kelso Investment Associates VIII, KKR 2006 Fund, Oak Hill Capital Partners III, Thomas H. Lee Equity Fund VI and Warburg Pincus Private Equity X.