LP corner, week of July 5, 2010

Arizona stays active at lower end of market

The $23 billion Arizona State Retirement System, a relative newcomer to the private equity asset class, has made a handful of commitments recently and expects to make several more soon, as it builds its way toward a target allocation of 7%. As of March 5, the actual private equity allocation stood at 1.6 percent.

The limited partner intends to commit $450 million this year and next to private equity, according to a pension fund document.

Arizona says it is particularly interested in general partners that invest in small companies. Markets of interest include energy, cleantech, infrastructure, distressed-for-control, turnaround and secondaries.

Commitments made by Arizona this spring, totaling $320 million, went to such funds as Arlington Capital Partners III; energy infrastructure vehicle Energy Capital Partners II; buyout vehicle Kinderhook Capital Fund III; health care and life sciences buyout fund Linden Capital Partners II; turnaround fund Littlejohn Fund IV; growth capital vehicle Seidler Equity Partners IV; and government-related buyout fund Veritas Capital Fund IV. —Nancy Gordon

Two Midwest states have capacity

Two limited partners in the heartland have $300 million combined to invest in private equity over the next year.

The Teachers’ Retirement System of Oklahoma is looking to pledge $200 million to the asset class during the next 12 months, while the Nebraska Investment Council has room to commit $100 million through the same period.

Oklahoma has a target allocation to private equity of 5%, but its current level of commitments, $117.5 million, represents only about 1.5% of the $8 billion plan sponsor, according to Investment Associate Nick Pointer.

Meanwhile, the $14 billion Nebraska Investment Council has a target allocation to private equity of 5%, with a range of 3% to 7 percent. Areas of interest include the energy sector as well as buyout funds, where it is currently underweighted, said State Investment Officer Jeff States. —Nancy Gordon

Maryland below target, worried about PE risk

The Maryland State Retirement Agency only has 3% of its portfolio committed to private equity, well below its newly lowered target allocation to the asset class of 10 percent. Even so, the limited partner expects to pledge less aggressively to the asset class due to the slow dealmaking environment.

“We expect to commit less because managers have been slow to put money to work over the last couple of years,” said CIO Mansco Perry via a spokesperson. “As a result, we’re more inclined to be very deliberative regarding future commitments. We are extremely concerned about taking on additional risk that was not originally contemplated.”

During its May board meeting, the $33.7 billion pension fund lowered its target allocation to private equity from 12% to 10 percent.

During the 2009 fiscal year, which began on July 1, the state pension fund pledged a total of almost $2 billion to 28 private equity funds. Private equity pledges made in 2009 include ones to ABS Capital Partners; Clayton Dubilier & Rice; Falcon Investment Advisors; Kohlberg Kravis Roberts & Co.; Littlejohn & Co.; Peninsula Capital Partners; TA Associates; and Wind Point Partners. —Nancy Gordon