1. Maine PERS manages $11.5 billion in assets, including $168 million in private equity, well below its 10 percent allocation target. What is your approach to the asset class?
While we’d like to get the program up and running, we’re not going to rush. We’re not going to go out and buy a billion-dollar funds-of-funds portfolio to get money in the ground. Our strategy is to very deliberately and carefully pick a small group of general partners to work with. We have a target of wanting to work with no more than 25 general partners, and we currently have 18. And we want to have meaningful relationships with every one of them.
2. Have you used the secondary market to diversify your portfolio by vintage year?
We have a $100 million secondary program that is intended for making investments with some of the 25 general partners that we plan on having in the portfolio long-term. In some cases these firms have not been to market since we’ve been investing, and we can find a fund that they raised in 2007 that is on the secondary market, which is something that would give us a foothold towards developing a bigger relationship with that general partner. Or, the situation could be a general partner that we already have an investment with, but we want to go backwards to get some vintage-year diversification. Buying secondaries on the cheap is not our primary strategy, although price always matters. The primary strategy is to get exposure and diversify by vintage year with general partners that we want to have on our platform long-term.
3. I hear Maine PERS just started a co-investment program. Can you tell me about that?
We have a $200 million co-investment program, which we established in the first quarter of 2013. The investment team has full discretion on the program and we intend to make investments only with the general partners we are already working with, and in the portfolio companies that they are investing in on our behalf. This gives us an opportunity to invest a little more money in portfolio companies that we think are great opportunities, and it’s also an opportunity to lower our management fees.
4. How does Maine PERS find, hire and retain talented investment professionals?
We have 10 people on the investment team and seven of them work on private markets. Our team is as good as any investment team out there. They are highly trained and very talented. Finding them has not been a problem, and, to date, retaining them hasn’t been a problem either. To find and retain good people, we give our people interesting things to work on, and we treat them nicely. So far that has been a very successful strategy. We don’t compete on money with the general partners and Boston asset managers, although I think our staff is well-compensated.
5. What do you wish that private equity firms better understood about Maine PERS?
I’ve got a little pin on my wall that says “We don’t care how they do it in New York.” To me, that means that while a particular general partner might be a great investor, we don’t really care who’s in their fund. Sometimes their lead pitch is: ‘Here’s a list of our clients.” That doesn’t resonate with us very well. We’re more interested in what they are going to do for us. And we’re interested in doing our own homework. Having a marquee endowment as an investor doesn’t necessarily make it a good fund.
Edited for clarity by Gregory Roth.