Large public pension funds in New York, California and Ohio are looking increasingly to alternative investments in private equity, hedge funds and emerging markets in a global hunt for yield, say senior managers and trustees.
The global credit crisis has put a squeeze on money managers who must try to boost returns by looking at nontraditional investments that are a growing allocation in some portfolios, in some cases making up more than a quarter or more of fund holdings.
“We’re going to act prudently and be hesitant to rapidly increase our assets to alternatives, but we’re pretty much of the opinion that that’s where you have to be,” says Joe Alejandro, treasurer of the New York City Patrolmen Benevolent Association, during a conference earlier this month.
Recession has hit Ohio and other states hard, but alternative investments in areas such as real estate and casinos may present opportunities, says J.P. Allen, investment committee chairman of the Ohio Highway Patrol Retirement System.
“When things are bleak, now is the time to buy, when there’s blood on the street,” says Allen, who adds that the state pension fund benefited from real estate and timber investments in 2008. It has since pared back on some of those investments, he says.
Alejandro says that his current allocation is about 70% equity and about 25% in alternative investments, which he would like to increase to between 30% and 35 percent. He says that he has made a push for greater investments in hedge funds of funds, private equity and real estate to the new comptroller, who starts in January.
About 350 hedge fund managers, trustees and treasurers attended an Alternative Investment conference that began on Dec. 6 held at the Ritz-Carlton in Dana Point, Calif., sponsored by the Opal Financial Group. That’s down from about 400 participants last year, organizers say, and a sign of how the market for complex investments has shrunk.
Allen says many retirees took hits in the wake of the global credit crisis, but alternative investments in timber and real estate in 2008 helped offset losses, although he has since sold some of those assets to book a profit. —Walden Siew, Reuters
CalPERS re-ups with Hellman & Friedman
It was only the second commitment to a buyout fund made directly by CalPERS this year.
Fund VII recently closed with $8.8 billion, making it the largest fund ever raised by San Francisco-based
CalPERS has been a steady supporter of the firm, beginning with a $100 million pledge to its second fund in 1991 and additional investments in other funds. Including the most recent pledge, CalPERS has $1.12 billion committed to the firm, representing 2.2% of its alternative investment portfolio. As of June 30, 2009, the vintage-2004 fund V had generated a net IRR of 28% and an investment multiple of 1.8x, according to CalPERS. —Nancy Gordon
NY Pledges to clean energy fund
Hudson Clean Energy Partners recently closed its first fund with pledges totaling $1.02 billion, a hair past its $1 billion target. The Teaneck, N.J.-based firm already owns five portfolio companies in the solar power and wind energy sectors.
In April 2008, New York State Comptroller Thomas DiNapoli, sole fiduciary of the pension fund, launched the Green Strategic Investment Program to increase commitments to environmentally focused investment strategies by $500 million over three years across the state pension fund’s entire portfolio.
At that time, the LP had $40 million invested in private equity funds focused on renewable energy and clean technologies. The state pension fund also had more than $16 million already invested in New York-based cleantech companies through its Instate Co-Investment Program. —Nancy Gordon