Limited partner: California Public Employees’ Retirement System (CalPERS)
Commitment: $400 million
Fund manager: Centinela Capital Partners
The California Public Employees’ Retirement System (CalPERS) has made a $400 million commitment to funds-of-funds manager Centinela Capital Partners as part of its effort to invest more capital with emerging managers–particularly ones that invest in California.
Centinela intends to invest with private equity firms active in leveraged buyouts, expansion capital and venture capital. Expect the firm to begin investing by the end of the year and to commit capital over a two to four year time period.
“What’s happening in the markets is that the big funds are getting bigger and bigger and if you have a track record, LPs readily commit capital to those funds,” says Joncarlo Mark, a senior portfolio manager of CalPERS Alternative Investment Management (AIM) Program, explaining the reasoning behind the new program. “On the smaller end of the market and more specifically on the emerging end of the market, managers still struggle to raise capital.”
“If you look at every great fund in the world, at one point or another it was an emerging manger,” adds Mark. “Because they’re new and because they’re generally starting off at the small end of the market, it requires real focus and we believe we’ll benefit from a dedicated team to evaluate these various opportunities.” Mark says that because of the high demand for places in good funds, it may sometimes be too late to invest in a proven manager’s second or third fund.
Mark says that the pension system defines the term “emerging managers” broadly, but intends to focus on smaller firms without the track record to raise a large fund. “We want these vehicles to act as a farm system for CalPERS,” says Mark.
The Centinela commitment is part of the California Initiative, a larger effort to reach a more diversified pool of general partners and to invest capital in underserved urban and rural areas in California. Two weeks before announcing the Centinela commitment, CalPERS announced a $500 million commitment to Hamilton Lane as part of the initiative.
Half of that $500 million has been allocated for California-based private equity funds; the other half is earmarked for direct co-investments in California-based companies. Hamilton Lane, a long-standing manager of CalPERS funds, is managing these investments from its San Francisco office. The pension system started the California Initiative in 2001 to invest in areas typically overlooked by traditional private equity investors.
Centinela Capital Partners is based in New York and California and is the brainchild of Cesar Baez, who most recently oversaw alternative investments for Deutsche Bank Asset Management. He is also the former head of alternative investments for the State of New Jersey Division of Investments.
CalPERS has more than $220 billion in assets under management, making it the largest pension fund in the United States. CalPERS AIM program has $33.1 billion committed to funds and $12.1 billion invested in the market as of the end of this past June. — M.S.