Pa. SERS Forms New Tie Despite Nearing Top Of Range

Pennsylvania State Employees’ Retirement System has made a commitment of up to $25 million to Yucaipa American Alliance Fund II LP, earmarked for 10 to 15 control buyout investments in mid- to large-size U.S. distribution/logistics, manufacturing and retail companies.

The pledge represents a new relationship for the limited partner, even though the pension fund is already past its private equity target and very close to the top of its range.

Los Angeles-based Yucaipa Companies, which makes investments of $50 million to $300 million, formed the fund in September 2007, setting a goal of $2.5 billion. By last month, it had gathered $1.2 billion in capital commitments. The vintage 2004 predecessor fund raised $793 million. Atlantic-Pacific Capital is the placement agent.

Yucaipa Companies has a “worker-friendly focus” and targets “investments where corporate preservation and growth, as opposed to downsizing, are the central investment themes,” according to a California Public Employees Retirement System document.

Yucaipa Companies intends to contribute 5 percent of total commitments to the partnership and will spend six years investing the capital. The firm charges a management fee of 1.85 percent on committed capital per year during the commitment period and after that, the same percentage on capital contributions used to make investments. Sixty percent of transaction fees will be credited against the management fee. The vehicle has an 8 percent preferred return and 20 percent carried interest.

Other backers of Yucaipa American Alliance Fund II include the Los Angeles City Employees’ Retirement System, which pledged up to $20 million, and CalPERS, which promised $400 million. Since its founding in 1986, Yucaipa Companies has invested $3.3 billion in 40 deals, with a return multiple of 2x, according to a Los Angeles City Employees’ Retirement System document.

The Pennsylvania State Employees’ Retirement System manages $33 billion and has an actual private equity allocation of 17.10 percent, which is above its target allocation of 14 percent and near the top of its allowed range of 10 percent to 18 percent.