LP notes, week of April 21, 2008

New Jersey buys stake in AnaCap Financial

The New Jersey State Investment Council has taken its first minority stake in the management company of a private equity firm—a 5% ownership stake in AnaCap Financial Partners, a London-based investor that acquires mid-sized European financial services firms.

The AnaCap deal may be the first of many to come for New Jersey, which manages $78 billion in assets. The LP (as PE Week previously reported in the April 7 issue) plans to take ownership stakes in “a couple” of private equity firms within the next year, said William Clark, director of New Jersey’s Division of Investment, at a conference early last month. Clark cited the prospect of impressive investment returns and the ability to closely observe the workings of private equity managers as reasons why.

New Jersey did not have a long history with AnaCap Financial before buying an ownership stake. In 2006, the state pension fund made a commitment to AnaCap’s $366 million debut fund through a separate account mandate focused on small to mid-market European funds and managed by Goldman Sachs. Last month, in addition to taking the equity stake, New Jersey directly committed $166 million to AnaCap Financial Partners Fund II, the firm’s sophomore vehicle.

AnaCap’s portfolio includes Apex Credit Management Ltd., a British debt collection and recovery company; U.K.-based securities broker Conduit Capital Markets; and Credoma, a residential mortgage provider based in the Czech Republic. —Joshua Payne

PSERS commits to Philly shop’s third fund

The Pennsylvania Public School Employees’ Retirement System is in talks with LLR Partners to commit 25% of the Philadelphia-based buyout shop’s latest fund, according to sources familiar with the funding. That is the maximum PSERS is allowed to commit to a single fund.

LLR Partners is targeting $600 million for its third fund, an increase from its $360 million second fund, which closed in 2004, and its $260 million first fund, which closed in 1999. The state pension fund, with $64.1 billion in assets, intends to commit about $188 million to the new vehicle.

Based on glowing reviews from PSERS, contained in a briefing to the pension fund’s investment committee, LLR Partners has an attractive track record with which to coax previous investors and lure in new ones.

Fund I is fully invested and more than 80% of its portfolio has been realized, according to PSERS, generating a gross internal rate of return of 36.3% and 3.1x return on invested capital. It is expected to generate a gross IRR of 31.7% and 3x invested capital, yielding a net IRR of 23.3% and 2.3x capital after fees, when including the value of the remaining unrealized investments.

Fund II performance is still fresh, but it is 70% committed, with investments in 12 companies. The firm has exited one of those investments, of $20 million, generating cash of $67 million and stock of $23 million, for a total value of $90 million, or 4.5x invested capital. Its investments are performing “at or above expectations,” according to Charles Spiller, PSERS’s director of private markets and real estate.

Sectors of interest for LLR Partners include business services, financial services, health care, consumer services, and information technology.

The pension manager also likes the fund because its six-person investment team—Mitchell Hollin, Seth Lehr, Scott Perricelli, Ira Lubert, David Reuter, and Howard Ross—has been together since 2000. The partners are also making significant capital commitments to the fund.

Officials at PSERS and LLR Partners declined to comment.