The roughly decade-old private equity programs of three New York City pension funds are off to reasonably strong starts. But a major slowdown in commitment pace in the wake of the financial crisis will have implications for returns in the years ahead.
One of the three pensions,
In a written statement, a spokesman for HM Capital Partners said, “The current valuation of HM Capital’s Sector Performance Fund does not reflect the substantial unrealized value of its food and energy investments.” He added: “Media investments made in 2007-2008 resulted in this depressed valuation and, as such, the firm will no longer invest in this troubled area. HM Capital fully expects the Sector Performance Fund to be profitable and the firm looks forward to a successful future exclusively focused on food and consumer products, an area of core strength for the firm.”
As for overall performance, the largest of the three pension funds, the $42.7 billion New York City Teachers’, has generated an IRR of 8.8 percent since inception and a total value multiple of 1.2x on its $2.0 billion private equity portfolio as of March 31, according to a report prepared for the pension fund’s trustees by adviser
As of the same date the second largest, the $24.6 billion
All three pension funds, along with two others, are under the direction of the New York City Office of the Comptroller. (
The portfolios share much in common, not surprising since they fall under common management. As of March 31, New York City Teachers’ held interests in 125 funds managed by 85 different firms. Funds devoted to corporate finance and buyouts represent nearly three-quarters of money invested, followed by venture capital (11 percent) and special situations (7 percent). The first draw-down dates to mid-1999 and 4.4 years was the average age of active commitments.
New York City Police held interests in 138 funds, by our count, as of the end of March, and it appears to be buyout-heavy like that of New York City Teachers’. The first draw-down took place in late 1998. New York City Fire held interests in 115 funds managed by 77 different firms, largely pursuing buyout/corporate finance strategies, as of the end of March. Like New York City Police, the first drawdown dates to late 1998 and five years was the weighted average age of commitments.
Interestingly, the three pension funds ramped up their commitment pace rapidly in the mid-2000s, followed by a dramatic drop-off in the last few years as they progressed toward their target allocations. Together the three committed $249.5 million to eight funds that had their first drawdown in 1999. By 2006 comparable figures had climbed to $1.2 billion to 68 funds; and by 2008, the peak, the three pensions committed $2.1 billion to 98 funds that had their first drawdowns that year. But then a huge deceleration that saw the three commit just $115 million to five funds that first drew capital last year. By press time I wasn’t able to get an explanation for this drop-off from the NYC Comptroller’s office, although a spokesperson noted that both the new comptroller and Schloss started their new jobs in January 2010.
This year the pace has picked up again as at least two of the pensions gained some wiggle room on their target allocations. New York City Teachers’ saw a target allocation boost from 4 percent to 6 percent in the second quarter, for example; its private equity portfolio as of the end of March accounted for 4.6 percent of plan assets. The same quarter New York Fire won approval for an increase in target allocation from 5 percent to 7 percent, translating into a pace of $100 million to $150 million per year over the next four years. Its actual allocation as of March 31 was 6.0 percent.