The $26 billion Arizona State Retirement System, a newcomer to private equity, is searching for one or more separate-account managers to commit roughly $1 billion over three years. RFPs were issued in October, and responses were due in mid-December.
“We have just started evaluating proposals. I don’t expect any awards earlier than March 31, if then,” Bob Wittsell, procurement manager, told Buyouts.
The proposed separate accounts would come on top of the commitment pace already approved by the board, which ranges from $500 million to $550 million per year between 2009 and 2014. A November private equity asset class review prepared by Ennis Knupp & Associates, a Chicago-based investment advisory firm, called for separate-account commitments paced at $330 million per year from 2009 to 2011.
The discretionary mandate could include primary partnership funds, general management partnerships, funds of funds, secondary funds, co-investment funds and direct co-investments. Possible sub-classes include buyouts (mega, large, mid, small), although Arizona prefers midsize and smaller buyout funds; special situations, including distressed, operational improvement, asset re-deployment, turnarounds, pre-bankruptcy, bankruptcy, control of senior debt strategies for conversion to equity positions; and longer-term holds for equity growth. The limited partner also plans to participate in venture investing, including seed, early, balanced and growth equity; and it will take a flyer on emerging managers or emerging markets or global regions.
Among industry sectors of interest to Arizona: energy, cleantech, alternative energy, infrastructure, raw land, timber, agribusiness and intellectual property.
The LP has a 5 percent target allocation to private equity, with a range of plus or minus 2 percent. It still has a considerable ways to go to get there, as the allocation stood at only 1.24 percent as of November. The portfolio includes about 40 private equity managers and has about $1.8 billion committed. Arizona gained authorization to commit to the asset class in October 2006, and it made its first pledge in September 2007. Of particular interest to the LP are mezzanine, secondary, buyout and special situation funds.
Select commitments include $80 million to mega-fund Blackstone Capital Partners VI LP, which The Blackstone Group intends to use for buyouts, take-privates, growth capital, minority stakes deals, distressed investments and rescue financing transactions globally; $40 million to Lincolnshire Equity Fund IV LP, Lincolnshire Management’s middle-market U.S. buyout fund; and $40 million to Platinum Equity Capital Partners II LP, a turnaround fund run by Platinum Equity LLC to buy underperforming assets, solve operational problems and use add-ons to consolidate a fragmented market.