Tennessee Launches PE Program With $900M Target

The $32 billion Tennessee Consolidated Retirement System intends to commit $900 million to private equity now that state law permits investing in the asset class.

The state has set an initial allocation target of 3 percent, although technically up to 5 percent of the retirement system’s assets can be invested in private equity, according to Ed Hennessee, Tennessee’s assistant treasurer for employee benefits and investments.

The pension fund intends to start a search for a private equity director this month, followed by a search for a private equity consultant, so it will be several months before any funds are deployed, said Hennessee.

In June, the state established an investment policy allowing the retirement system to invest in domestic and international venture capital, corporate buyouts, mezzanine, distressed debt, special situations and secondary funds. It can invest in limited partnerships, private placements, co-investments, funds of funds and other commingled funds.

The move came after a three-year period in which the investor underperformed the median in the universe of public plan sponsors with more than $100 million of assets. According to the pension fund’s annual report for the fiscal year that ended on June 30, 2007, the underperformance stemmed from the system’s high fixed income allocation and low alternative investments allocation relative to other large public funds.

About a year ago, according to Venture Nashville, investment advisor Strategic Investment Solutions recommended that the pension fund implement an alternative investment program that mainly focused on private equity.

In February of this year, Michael Brakebill joined the system as CIO after leaving his position as director of domestic equities at Texas Teacher Retirement System, a big backer of private equity where he had worked since 1994. Brakebill is responsible for hiring the director of private equity.