New York Teachers’ pension sets higher PE allocation plan

New York State Teachers’ Retirement System plans on making between $1.6 billion and $2 billion in private equity commitments in 2024, an increase from its current range.

Institutional investors mapping their pacing plans face a difficult path due to reduced distributions and continued uncertainty in the broader economy. New York Teachers’ 2024 pacing plan reflects these challenges as the system’s PE commitments remain less than earlier in the decade.

StepStone, the private equity adviser for the $134.9 billion system, revealed the pacing plan at New York Teachers’ board meeting held on July 26. Buyouts watched a broadcast of the meeting.

“There’s a chance we’re going to go to the lower end of that range. A lot of managers are pushing fundraising back since it has become so difficult,” said Scott Schwind, a managing director at StepStone.

So far in 2023, the system has committed $526 million to private equity, with a pacing range between $1.2 billion and $1.7 billion, StepStone’s presentation said.

New York Teachers’ committed $2.4 billion in 2020 and $2.3 billion in 2021, according to the presentation.

The system allocates 11.1 percent of its total portfolio to private equity, above its 9 percent target, according to board documents.

New York Teachers’ private equity portfolio has a $15 billion valuation, board documents said.

Its private equity portfolio is projected to generate $1.9 billion in positive cashflow in 2023. According to StepStone, the system’s private equity holdings have been cashflow positive every year since 2011.

“Your private equity portfolio is very well diversified and very healthy. You’ve had strong net positive cashflows for a number of years now,” Jose Fernandez, a partner and co-COO at StepStone, told the board.

Fernandez said portfolio company performance remains strong, as firms have been profitable even with increased inflation.

“Everyone expected a recession that’s not here yet,” Fernandez said.

StepStone recommended the system continue its emphasis on small and mid-market buyouts funds along with considering adding niche funds specific to certain industries and geographies.

“Identifying niche funds like these can enhance returns. These specialized strategies can also help the overall diversification of the portfolio,” Fernandez said.

According to Fernandez, New York Teachers’ is regarded as a good investor, which he said gives it access to highly desired managers.

“The best managers want to have access to capital. They want to know that you’ll be there as a partner in a few years when they have a new fund,” Fernandez said.

The system’s reputation and size, which ranks as one of the 10 largest public allocators in the country, allow it to have negotiating power with GPs, according to Fernandez.

This allows the system to get lower fees, co-investment and sidecar opportunities and coveted LPAC seats not available to other investors, Fernandez said.

“New York Teachers’ has been successful in getting advisory board seats with most of the investments you have. That’s not easy to do. That’s because of the scale, reputation and the length of time you’ve been in the market. Managers know you’re a responsible player in the industry,” Fernandez said.

The system, meanwhile, is running a large secondaries deal and shopping a portfolio valued at $6 billion, sources told Buyouts.