Iowa To Scale Back On PE In 2010

The $19 billion Iowa Public Employees Retirement System recently set a cap of $400 million for private equity commitments this year, down from last year’s $500 million and 2008’s cap of $800 million.

Unlike many other pensions, Iowa’s board does not approve individual commitments. Instead, its advisory firm, Pathway Capital Management, has full discretion to make pledges up to a maximum annual dollar amount agreed upon each year by the board. The adviser is not required to commit the full amount each year.

Pathway Capital determines an appropriate commitment amount each calendar year via a model that uses assumptions about the investment and distribution pace of existing and future partnership investments, as well as the potential growth of the total pension fund. The model tries to align the commitment pace with that needed to allow the pension to achieve its 10 percent private equity target and to maintain the allocation within the allowed range of 7 percent to 13 percent.

The adviser initially recommended a maximum commitment amount of $481 million for 2010 and $500 million in future years, which would have maintained the private equity program within the allowed ranges, but above the 10 percent target, until the year 2021. The pension fund’s staff, however, felt it would be better to lower the amount to $400 million to try to bring the actual allocation closer to the target over the next five years. According to a pension fund document, this lower amount would still allow Pathway Capital to take advantage of high-quality opportunities while making a more concerted effort to work toward the 10 percent target.

According to the LP’s annual report, as of June 30, 2009, the private equity/debt portfolio represented an 11.6 percent allocation. All told the pension fund has committed $6.1 billion committed to 217 partnerships. During fiscal 2009, which ended June 30, the LP committed $456 million to 13 new partnerships.

Past commitments include $49 million to CVC European Equity Partners V, a pan-European buyout fund; $41 million to H.I.G. Bayside Debt & LBO Fund II, which invests in distressed debt obligations and other securities of distressed mid-market companies; $45 million to Madison Dearborn Capital Partners VI, a North American buyout shop that specializes in communications, consumer goods, financial services and health care; and $45 million to buyout fund Onex Partners III.