Pension System: New York City Bureau of Asset Management
Pension Assets: $122 Billion (Feb. 28, 2012)
Invested Private Equity Assets: $8 Billion (Feb. 28, 2012)
Private Equity Allocation: 6.5% (Feb. 28, 2012)
Chief Investment Officer: Lawrence M. Schloss
The New York City Comptroller’s Bureau of Asset Management which oversees $122 billion across the city’s five main public pension funds, has committed $600 million to Apollo Global Management and $250 million to Golden Tree Asset Management as part of separate managed accounts that will focus on opportunistic credit strategies. The bureau also committed $400 million to Fortress Investment Group’s Fortress Credit Opportunity Fund III LP, a distressed credit fund. The three pledges together amount to $1.25 billion.
Speaking about the commitments with Buyouts, Lawrence Schloss, the bureau’s chief investment officer, said, “The reason we’re doing this is we wanted capital to be nimble.” He added, “We wanted to create our own structure that was custom tailored to our needs. And our needs are to make investments that cut across debt asset classes and geographies.”
Importantly, said Schloss, New York City’s pensions aim to have six to eight separate managed accounts in all for opportunistic credit strategies, meaning four to six more are likely. These would be supplemented by commingled funds, like the latest from Fortress. In all, said Schloss, the city expects to make an additional $3 billion to $4 billion in commitments to opportunistic credit investments to meet the 5 percent target for this area.
The commitments to Apollo, Golden Tree and Fortress and will be spread among four of the city’s five pensions, including those serving firemen, police officers, teachers and other city employees. New York City’s five pensions have about $3 billion, or 2.5 percent, currently invested in opportunistic credit strategies, plus $8 billion, or 6.5 percent, in invested private equity capital.
The separate account with Apollo is to focus on senior loans, high yield bonds and mezzanine debt in the U.S. and Europe. The Golden Tree separate account has a narrower mandate, and will invest in bank loans, high yield and distressed debt, all within the United States. Both separate accounts are recyclable, but according to Schloss, New York City will be able to terminate the arrangements when it wants.
Large separate account commitments such as those with Apollo and Golden Tree represent a big change in the way public pensions, the largest sources of private equity capital, are leveraging their size and clout to drive down fees, negotiate better terms and gain more control over where their money actually is actually invested.
Such accounts are fundamentally different from typical private equity funds in that the money from such commitments is not mixed in with money from other investors, but rather focused on customized investments, structures and strategies that match the needs of just one investor.
These separate account commitments are the latest in a series of separate account deals that have drawn intense interest in the world of private equity and opportunistic credit. Last year, the Texas Teachers’ Retirement System made two $3 billion separate account commitments to Apollo and Kohlberg Kravis Roberts & Co. A few weeks later, the New Jersey Division of Investment pledged $1.5 billion to The Blackstone Group for three separate accounts that would be spread across different strategies.