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Nappier pursues moderate activism as head of Connecticut state pension fund

Denise Nappier hates to lose. And in her more than eight years as Connecticut State Treasurer and sole fiduciary of the state’s $24.5 billion pension fund, the Connecticut Retirement Plans and Trust Funds, she’s pitched a lot of battles.

One scuffle that still brings up bitter memories for Nappier, even though it technically was a victory in her favor, was the slugfest she had with Forstmann Little & Co. She took the New York buyout firm to court in 2002, accusing it of overexposing Connecticut’s pension money to two failing companies, XO Communications Inc. and McLeodUSA Inc., while trying in vain to resuscitate them.

Nappier, known for promoting strong corporate governance in the companies her state invests in, sought the return of more than $120 million to cover the pension fund’s share of the losses. The two-year battle ended ambiguously in 2004. A jury found Forstmann Little guilty of breech of contract, but refused to award damages under the argument that, by honoring the firm’s capital calls, the pension fund acquiesced to the investments. Nappier, who believes the jury did not have a deep-enough understanding of private equity to make an informed decision, disagrees.

“When we find it necessary to go after money we lost through investor malfeasance, we should then not be penalized because we answered the capital call,” Nappier, 55, told a roomful of buyout professionals at the 19th annual Buyouts Symposium East conference earlier this month (hosted by Buyouts, a sister publication of PE Week). “We have to rely on the partnership with the GP, and we do so in good faith.”

Connecticut still managed to recoup $15.5 million from Forstmann Little in exchange for dropping its appeal.

Elected to her third term as state treasurer last year, Nappier has been battling to protect pension fund assets since the beginning of her tenure. Her predecessor ensured that. Nappier inherited in 1999 a state treasury tainted by the corrupt acts of Paul Silvester, the former treasurer who later pled guilty to taking kickbacks from buyout firms and placement agents.

Silvester’s transgressions included receiving more than $100,000 in questionable campaign contributions in 1998 from buyout firm Triumph Capital, and directing an additional $2 million in Triumph Capital money to a girlfriend and another acquaintance. At the same time, Silvester gave Triumph Capital $200 million in state pension funds to invest.

When Nappier took office, the treasury put in place a self imposed, three-and-a-half year moratorium on new private equity commitments. During that time, it negotiated with general partners to reduce its private equity exposure from 20% allocation to 11 percent. Nappier ultimately recovered more than $1 billion in mismanaged or illegal private equity investments made by the former treasurer. “It is really unfortunate that my predecessor chose private equity investments as a vehicle for corrupt activities,” Nappier said. Connecticut reentered the private equity market in 2003, making its first investment in the $6 billion KKR Millennium Fund. —Ari Nathanson

For the complete profile on Nappier, check out the latest issue of Buyouts.