Two of the largest public pension funds have set out to identify small firms that may not have come across their radars. The California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS)—with the help of investment advisor Altura Capital—are compiling a database filled exclusively with emerging managers and financial service providers.
“There was big interest from both CIOs, especially Christopher Ailman at CalSTRS, to map out the universe of emerging managers,” says Altura Capital CEO and President Monika Mantilla. “There’s been a lot of talk about the space, but no comprehensive method of keeping track of who is actually out there. We are building a tool to help us locate new talent and new sources of alpha generation.”
The database will target private equity funds, funds of funds, private real estate investments, REITs, hedge funds, hedge funds of funds, consultants and other areas. Firms fitting CalSTRS’ and CalPERS’ “emerging manager” criteria have until July 17 to complete an online questionnaire accessible via Altura’s website and join the database. The URL is www.alturacap.com.
Since the project was first announced in April, emerging managers have been coming out of the woodwork. After just two weeks, Altura has had thousands of hits on its website from users in the U.S., Japan, India, China, Switzerland and England.
“We originally were focusing strictly on the U.S. market,” she said. “We never expected anything close to the international attention we’ve received. It started just hours after we launched, and we view it as a manifestation of how the investment world has essentially become a small global community.”
With respect to private equity funds looking for a slot in the database, the participation criteria set by CalSTRS and CalPERS states that any PE firm looking to apply must have $600 million or less in assets under management for expansion and/or buyout funds, or $300 million or less for venture capital funds. Additionally, the current funds of interested parties cannot carry a Roman numeral higher than III, and employees at the firm must own at least 45% of the equity of the firm. The minimum requirements for emerging private equity managers state the firm must have a PPM in place and must be a legally structured entity with a corporate tax identification number (CTIN).
Private equity funds-of-funds, meanwhile, cannot have more than $2 billion of assets under management and their equity must be 45% employee-owned unless the fund is specifically focused on emerging private equity funds. The FoF minimum requirements also state that firms must have a PPM, or a similar proposal, in place in the event of a separate account relationship, and must be a legally structured body with a CTIN.
Mantilla said she expects the database to come away with between 500 and 1,000 firms by the time the sign-up window ends. CalSTRS and CalPERS will both have access to the full database, and will release a public version of it—sans performance data and other vitals to other limited partners, including endowments, corporations and other institutional investors.
“Many of these firms have simply not been heard of,” Mantilla said. “By being known to the broader LP community, it will promote an efficiency and transparency that will benefit everyone.”