The Oregon State Treasury has negotiated lower fees and better terms with six private equity firms, and is in talks with two other general partners to do the same. The state is taking advantage of a fundraising market in which too little capital is available for too many firms seeking it.
One of the firms that agreed to lower its fees is The Blackstone Group, which recently wrapped up its latest fund at $13.5 billion. Oregon made a $200 million commitment to Blackstone Capital Partners VI LP recently, in return for fee concessions, confirmed spokesman James Sinks. The limited partner had not previously pledged to a Blackstone Group private equity fund, although it did commit $200 million in 2007 to Blackstone Real Estate Partners VI LP.
Oregon State Treasury would not name the other firms that agreed to lower fees but said in a prepared statement: “One firm agreed to cut management fees by 20 percent. Another is capping its management costs at a level reduced by 25 percent.”
Reduced fees will help the state improve its performance in the asset class in the years ahead. Private equity has already been Oregon State Treasury’s best-performing asset class over the past three decades, returning an average of 16 percent a year, as of March 31, with a total value multiple of 1.4x.
So far this year the limited partner has pledged at least $1.6 billion to 13 private equity firms. Its actual allocation to private equity now stands at 22 percent, above its 16 percent target and even above the high end of its range of 12 percent to 20 percent.
The state, which has been pledging to private equity since 1981, has committed in a big way over the last decade to mega-firms Kohlberg Kravis Roberts & Co. ($3.60 billion) and TPG ($1.75 billion); a program called Northwest Emerging Ventures run by Grove Street Advisors for investing in smaller funds ($950 million); European buyout shop CVC Capital Partners ($785 million); and energy specialist First Reserve Corp. ($775 million). Other firms that have gotten multiple commitments from the state in the past 10 years include Apollo Management, Oak Hill Partners, Oaktree Capital Management, Providence Equity Partners and Warburg Pincus.
The Treasury and its Oregon Investment Council, which manage $68 billion in assets, invest for the Oregon Public Employees Retirement Fund, Common School Fund and State Accident Insurance Fund.