Connecticut Seeks Consultant For Co-Investment Program

The Office of the Connecticut State Treasurer late last month issued an RFP for a private equity consultant to develop a co-investment program for the $26 billion Connecticut Retirement Plans and Trust Funds. Deadline for applications is Sept. 15. A decision is expected in December, and the contract is expected to start no later than March.

Connecticut seeks one or more firms to provide investment consulting services for a five-year term. The consultant would work with the treasurer and chief investment officer of the pension funds to develop a co-investment program in venture capital, leverage buyouts, special situations, mezzanine capital and international private equity. Much of the money would eventually wind up in the hands of Connecticut-based fund managers, and Connecticut-based businesses.

The state pension funds have a target allocation of 11 percent for private equity, which includes corporate finance, venture capital, private debt vehicles and direct co-investments. The state steers about 60 percent to 90 percent of its private equity commitments to corporate finance and buyout funds, and the rest to venture capital funds. To gain exposure to certain markets, such as venture capital, small buyout and clean technology, the state invests through funds of funds.

The Connecticut Retirement Plans and Trust Funds was one of the first public plan sponsors to create a private equity allocation and, as of March 2008, had about $2.5 billion in capital committed to the asset class. Its goal is to commit $600 million to $700 million yearly to private equity, a pace intended to reach the 11 percent target allocation in a few years. The pension fund has made more than $1.2 billion in private equity commitments to women- and minority-owned firms.

The state continues to seek a CIO to replace Susan Sweeney, who left in May 2007, according to spokesperson Christine Palm. In June of 2007, Lee Ann Palladino was appointed acting CIO.

The Connecticut Retirement Plans and Trust Funds have a checkered history with private equity firms. In 2004, Forstmann Little & Co. paid $15 million to the Connecticut pension fund to resolve all issues in a lawsuit charging that the firm breached its contract and fiduciary responsibility to the state; it also returned $1.2 million that had been withheld from the state to cover legal expenses stemming from the suit. Connecticut State Treasurer Denise Nappier had sued Forstmann Little after the private equity firm lost $125 million of state pension funds making investments that it felt were not consistent with its contract.

Connecticut Retirement Plans and Trust Funds comprises six state pension and eight state trust funds, covering 160,000 teachers, state employees and municipal workers as well as academic programs, grants and other state initiatives.