NYC Teachers plans PE target boost as ‘opportunities are cheapening’

New York City’s pensions look to take advantage of an increased cap to alternative investments, which could provide an injection of fundraising capital.

Teachers’ Retirement System of the City of New York is one step closer to upping its private equity target allocation to 10 percent.

NYC Teachers has a relatively small allocation to private equity when compared to other large institutional investors. Investment staff believes favorable market conditions make it a good time to increase its allocation to private equity. The system has the flexibility to boost its target due to a recently enacted New York state law that allows state and city pensions to commit more to alternatives.

NYC Teachers’ investment committee approved a plan to raise its private equity target to 10 percent from 7 percent at its November 2 meeting, which was viewed by Buyouts. The system’s new asset allocation policy awaits final board approval later this month.

The system currently allocates 8.7 percent of its total fund to private equity, according to the New York City Bureau of Asset Management, which manages the investment portfolios for NYC Teachers and the city’s four other public pensions.

“In private equity, we believe opportunities are cheapening. It’s a way to pick up very attractive deals, especially since many other investors are overweight to private equity. We’re also in a better position to negotiate better fees and gain access to the best managers. Our timing is pretty good,” said Steven Meier, chief investment officer for NYC’s pension plans.

According to Buyouts’ database, NYC’s five pensions have a net value of $253.7 billion, which would rank as the nation’s third-largest public investment system. Each NYC pension has its own investment strategies and consultants but share investment teams.

Most of the nation’s largest pensions allocate much more to private equity than NYC’s private equity funds. For example, State of Michigan Retirement Systems, Washington State Investment Board and Oregon Investment Council all allocate well over 20 percent to the asset class.

A state law enacted in late 2022 lifted the alternatives cap on New York City’s pensions, along with New York State Common Retirement Fund and New York State Teachers’ Retirement System, to 35 percent from 25 percent.

The new law bodes well for private equity fundraising. The city’s five pensions could commit roughly $25 billion more annually to alternatives under the increased cap.

Other New York City pension systems are looking to take advantage of the new law. New York City Employees Retirement System and New York City Police Pension Fund are also considering increasing their target allocations to private equity to 10 percent. Both currently allocate 8 percent.

“This gives us additional flexibility and strength,” said Mike Fulvio, who represents NYC Teachers consultant Rocaton.

NYC Teachers’ new asset allocation policy would target 29 percent to alternatives, which also includes real estate, infrastructure and opportunistic fixed income.

“We could see public markets sell off very quickly, which could lead to a position where alternatives are much closer to or above the 35 percent cap. We think a 29 percent target provides some cushion,” Fulvio said.