In a sign of growing interest among investors in direct investments, the $32 billion Teachers’ Retirement System of the State of Illinois expects to launch a $50 million to $75 million co-investment program in the next 12 months, said Director of Investments Greg Turk at a June conference in Chicago hosted by Buyouts. The limited partner is now searching for an adviser to help run program.
In April, Stan Rupnik, the pension fund’s acting executive director, told Buyouts that “co-investment may be an area of interest, should these opportunities be found to add to the risk/return profile of the overall fund.” The pension also sees co-investing as a way to help manage liquidity and lower fees, since general partners don’t generally charge management fees or carried interest on co-investments.
Illinois Teachers’ is one of several pension funds placing greater emphasis on co-investments. The California Public Employees’ Retirement System considers it a priority this year to add to its in-house co-investment capabilities. And the California State Teachers’ Retirement System, which began co-investing in 1996, allocates 7 percent of its private equity portfolio to co-investing. CalSTRS is now seeing more opportunities for co-investing, which is handled internally, but its “interest will hinge on the relative risk-reward potential,” said a spokesperson.
The Florida State Board of Administration, the New York State Teachers’ Retirement System, Oregon Public Employees’ Retirement Fund, the State of Michigan Retirement Systems and the Washington State Investment Board all have co-investment programs that rely on outside advisers.
In Canada, several large LPs are changing the emphasis of their private equity programs from making fund commitments to doing direct transactions using their in-house staffs. Plan sponsors taking this tack include the Alberta Investment Management Co., OMERS Private Equity, the Ontario Teachers Pension Plan and the Public Sector Pension Investment Board.