The New York City Bureau of Asset Management, which manages $115 billion in assets from the city’s five municipal pension funds, has committed an impressive $880 million to four private equity funds, according to recent investment reports and a spokesman at the city comptroller’s office.
The largest of the four commitments was $300 million to Leonard Green & Partners‘ Green Equity Investors VI LP, a private equity fund with a $5 billion target. The Los Angeles-based consumer retail specialist is known for making investments in such high-profile companies as Neiman Marcus, J. Crew, Whole Foods, Rite-Aid, Sports Authority, Petco and BJ’s Wholesale.
The fund has been on a fundraising tear in the last several months, gathering commitments from such major U.S. pensions as the Washington State Investment Board, the State of Wisconsin Investment Board, the Illinois Teachers’ Retirement System, the Ohio School Employees’ Retirement System, the Louisiana Teachers’ Retirement System and the New Mexico State Investment Council, among others.
Green’s previous funds have had strong track records of returns. Its most recent fund, Fund V, has generated an IRR of 18 percent a 1.3x return multiple, according to the June, 2011 return data from Washington State. The fund is expected to close in the first quarter. This is New York City’s first commitment to a Leonard Green fund.
The city also made a large commitment to another industry specialist, Vista Equity Partners, which focuses on technology and software. The $225 million pledge to Vista Equity Partners Fund IV LP is the second time the city has committed to a fund run by the San Francisco-based firm. The city’s previous commitment, to Fund III, which closed in 2007, has produced strong returns, including a 29 percent IRR and a 1.9x return multiple, according to the city’s return data from June, 2011.
Owing to these impressive prior returns, the firm was a top fundraiser in 2011. The firm raised $2.8 billion by the time the fund closed, which was above the fund’s original $2.5 billion target. Other pensions investing in Fund IV include the New York State Common Retirement Fund, the New Jersey Division of Investment, the Massachusetts Pension Reserves Investment Management Board, the Oregon Investment Council and the State of Wisconsin Investment Board.
A third fund to receive a large commitment from New York City at the close of 2011 was American Securities’ American Securities Partners VI LP, which netted a $250 million pledge. Fund VI is a middle market fund that seeks to raise $3 billion. The New York-based firm, whose roots go back to 1947 and the family office that managed the fortune of Sears, Roebuck & Co., has also garnered commitments to Fund VI from the Montana Board of Investments and the State of Wisconsin Investment Board. No return data was available for the firm’s recent funds.
Finally, New York committed $105 million to Summit Partners’ Summit Partners Growth Equity Fund VIII LP, a fund that closed this month. The growth equity firm, which is based in Boston, aims to invest in fast growing firms over a wide variety of industries. The firm’s previous fund, Fund VII, which closed in 2007, has so far garnered modest returns of 7 percent, according to March 2011 data from the California State Teachers’ Retirement System. CalSTRS does not disclose a return multiples.
Other investors in Summit’s Fund VIII include the Florida State Board of Administration, the Los Angeles County Employees’ Retirement Association and the Pennsylvania Public School Employees’ Retirement System.
New York’s five pensions together have $8 billion in invested private equity capital, about 7 percent of overall assets. The system also has roughly $5 billion in unfunded private equity commitments.
In an interview with Buyouts, peHUB’s sister publication, last March, Lawrence Schloss, the city’s chief investment officer said that to keep such a sizable private equity program at roughly the same size, the city would need to invest about $1.5 billion to $2 billion each year to the asset class.
More recently, New York City proposed streamlining its five pensions under a single board and an investment officer who was not a political appointee. Such an effort was advocated by the city’s Mayor, Michael Bloomberg, and its comptroller, John Liu, as a way to produce substantial savings on outside investment contractors. New York’s five municipal pensions are the New York City Employees’ Retirement System, Teachers’ Retirement System of the City of New York, the New York City Police Pension Fund, the New York City Fire Department Pension Fund and the New York City Board of Education Retirement System.
The move, which would also manage more of the pensions’ assets in house, would also seek to pay market compensation to in-house professionals to manage much of the system’s assets. While the proposal has been backed by city officials, the changes would still need approval from the New York State Legislature and Governor Andrew Cuomo before they can be put into place.