North Carolina gets back into PE investing with Landmark commitments

  • NC didn’t commit to a single PE fund in 2017
  • Treasurer campaigned against high-cost investments
  • New Landmark commitments include separate account

North Carolina’s Department of the State Treasurer inked its first private equity commitment under Dale Folwell, whose 2016 election campaign attacked the steep investment fees the state’s pension funds pay to alternative-asset managers.

At a May 17 Investment Advisory Committee meeting, the Treasurer’s investment management disclosed a $1.25 billion commitment to a series of funds managed by Landmark Partners, a secondaries PE firm that specializes in buying stakes in mature PE vehicles.

North Carolina, which committed $1.3 billion to PE funds in 2016, didn’t allocate a penny to PE in 2017, Folwell’s first year at the helm of the state’s $97.9 billion pension system.

Folwell promised to cut the fees North Carolina pays to investment managers by $100 million during the campaign. Private equity fees are “like an onion,” Folwell told The Wall Street Journal earlier this year. “The more you peel it, the more you find.”

North Carolina paid roughly $150 million in PE and real estate management fees in the fiscal year ended June 30, 2017. Incentive fees, which include carried interest, totaled more than $106 million.

The system rebooted its PE program with a commitment to Landmark because of the attractive risk-adjusted returns offered by the firm’s investment products, in addition to favorable economic terms, spokeswoman Stephanie Hawco wrote in an email.

Because they invest in mature PE assets, secondary funds typically take less time to deliver cash returns to their LPs.

North Carolina is sourcing its $1.25 billion commitment from two of its asset classes, with $800 million flowing through its PE platform and $450 million flowing through its investments in inflation-sensitive assets — which include investments that protect the pension fund against the effects of inflation.

The retirement system structured the commitment as a hybrid of a separate account and allocations to Landmark’s traditional commingled funds.

The investments made through Landmark Equity Partners XVI Opportunities, which can invest in individual companies in addition to PE-fund stakes, require North Carolina’s approval, Hawco wrote. (See chart.)

North Carolina’s Landmark Commitments
Private Equity
Fund Amount
Landmark Equity Partners XVI $300 mln
Landmark Equity Partners XVI Opportunities $300 mln
Landmark Equity Partners XVI Overflow $200 mln
Inflation Sensitive
Fund Amount
Landmark Real Assets Fund II $250 mln
Landmark Real Estate Partners VIII $125 mln
Landmark Real Estate Partners VIII Overflow $75 mln
Source: North Carolina Department of the State Treasurer

North Carolina started investing in PE in 1988. The portfolio has delivered an 8.24 percent internal rate of return since inception. Its post-2009 portfolio, which includes 49 funds, was performing better, at a 14.34 percent IRR.