After a recent report criticized its approach to alternative assets, the
As reported in the Nov. 3 issue of Buyouts, Kentucky Retirement Systems was reproached in a report published in October by the Kentucky Public Pension Working Group, which Governor Steve Beshear established in May to review its investment portfolio. The report described the pension fund’s low returns, insufficient diversification and a lower allocation to alternative assets than most other pension funds. It recommended that pension fund focus more on small and mid-market buyout funds than on larger funds that depend more on leverage for returns.
Now the pension fund, which has $15.5 billion in assets under management, is likely to raise its target allocation to private equity to 12 percent from the current 7 percent, according to CIO Adam Tosh. The actual private equity allocation stands at 10 percent. Kentucky Retirement Systems sees an increase in its alternative investments as one way to help meet its very large liabilities.
Tosh also said that the pension fund is looking to globalize its private equity portfolio by committing to buyout funds dedicated to Europe and Asia to reduce risk and enhance returns. Currently its exposure to non-U.S. assets has been through global vehicles, such as distressed-debt specialist
The pension fund also is contemplating putting more money into its emerging manager program, which began late last year with a $75 million commitment to
In all, the pension fund pledged $445 million to private equity this year, using seven managers. Tosh expects the pace to slow a bit next year, with total commitments likely to range between $300 million to $400 million. Kentucky is also evaluating some secondary market private equity commitments, although Tosh declined to be more specific.
Other problems cited in the October report included inadequate investment oversight and an investment manager structure with concentrated positions that increase risk. The report suggested an overhaul of the investment committee; broader diversification among both traditional and alternative asset classes; a review of poorly performing managers; and less concentration of managers.
In August, alternative investment consultant Strategic Investment Solutions’s contract was extended through June 2009 to give the LP’s staff additional coverage and time to evaluate its alternative consulting needs, although it seems likely that the firm will eventually be replaced in light of the suggestions made in the report. R.V. Kuhns & Associates was hired as the general investment consultant in September.