New York City Considers Private Equity Managers –

As the pensions in the New York City system get set to become some of the largest investors in private equity in the next several years, they are considering adding a gatekeeper and an internal professional to help manage their private equity program.

The four city pensions that invest in private equity-New York City Teachers’ Retirement System, New York City Employees’ Retirement System, New York City Police Pension Fund and New York City Fire Pension Fund-currently have more than $85 billion in funds under management and have just begun to commit capital to private equity. To date, the four groups have committed only about $300 million to the asset class.

The pensions plan to commit at least $2 billion to private equity, with as much as 40% dedicated to buyouts, in the next several years, said Chief Investment Officer Donna Anderson. The pensions are not under a deadline to commit the capital, she added.

In the last two years, four of the five pensions that comprise the city system approved investing 2% of their assets in private equity (BUYOUTS Sept. 15, 1997, p. 4). The fifth, the New York City Board of Education Retirement System, has only $1.6 billion under management and will not make an allocation to the asset class for at least the next several months, Ms. Anderson said.

The pensions will consider hiring a manager to help review private equity funds as soon as the program matures. For now, Ms. Anderson is handling the investments, reporting to the deputy comptroller of the city pensions.

At the same time, the second largest of the city’s five pensions, the $24 billion Teachers’ pension, is considering hiring a gatekeeper to assist in managing its fledgling program, Ms. Anderson said.

As of today, the Teachers’ pension has yet to commit any capital to private equity, although it approved its $480 million allocation last summer.

The Employees’, Police and Fire pensions already have hired Pacific Corporate Group as their non-discretionary advisor. The target the four pensions have approved for private equity represents $1.7 billion in invested capital, giving the pensions the ability to commit more than $3 billion to the asset class in order to achieve this investment level.

Slow Start Begets Cautious Approach

The pensions are taking a conservative approach to the asset class, however. “Our particular focus is on funds with a strong management team because we’re going at this in a slow, deliberate way. We are looking for partners who have been together and have a consistent strategy,” Ms. Anderson said, adding the pensions will consider investing in U.S. funds of all sizes.

The pensions to date have committed $125 million to Cypress Merchant Banking Partners II, L.P., $100 million to FdG Capital Partners, LLC (a firm that invests capital for families in New York City), and $80 million to VS&A Communications Partners III, L.P