LP corner, week of April 27, 2009

FoFs remaining active slowing pledge pace

With so many pension plan sponsors and endowments on the sidelines at the moment, either waiting for year-end portfolio valuation numbers or watching to see how the economy fares in the months ahead, funds of funds could be one of the few games in town for shops looking to raise a buyout fund in 2009.

Abbott Capital Management, for example, is plowing ahead with its usual approach. The New York-based fund of funds manager typically commits about $1 billion each year, and it intends to hold to that pace this year, said Managing Director Charles van Horne while at the Buyouts East conference in late March.

Abbott Capital invests in small and medium-sized buyout funds through Abbot Select Buyout Fund II, a $300 million vehicle used to commit mostly to funds of $1 billion or less. It has deployed about $100 million from that fund.

Abbott Capital is seeking $1 billion for its sixth fund of funds, Abbott Capital Private Equity Fund VI, which is expected to back between 20 and 30 general partnerships.

Meanwhile, Bill Walsh, managing director of Darien, Conn.-based Portfolio Advisors, says that his firm expects to put out less than $2 billion this year, versus about $5 billion last year, and that it will commit to one or two emerging manager funds in 2009.

Regarding terms and conditions, Walsh says that Portfolio Advisors is negotiating with three firms about lowering their management fees.

A pullback was also in order for Wellesley, Mass.-based Grove Street Advisors. Barry Gonder, a managing partner, says the firm’s normal commitment pace is $700 million per year, but this year it will be about $400 million, mostly in must-have funds where they could lose their seat at the table if they don’t pledge.

He says the firm will commit more to debt strategies and energy, but is being more cautious overall this year. The best chance for an emerging manager is to be a spin-out team, preferably from either a top-tier manager teaming up with some serial entrepeneurs, or else a top-decile manager striking out on their own.

When asked about pledging to emerging managers, Kevin Kester, a managing director at Siguler Guff, says that his firm has done so in the past and will consider it again. “We look at everybody,” he says. Kester runs the Small Buyout Opportunities Fund, a $600 million pool of capital that invests in the funds of buyout firms targeting small and lower mid-market companies. —Nancy Gordon

Ohio PERS cuts investment pace in half

The Ohio Public Employees Retirement System plans to reduce its private equity fund commitments significantly in 2009 in response to the economic downturn.

In 2008, the $2.4 billion Ohio PERS committed $894 million to private equity. It had expected to pledge $1.2 billion in 2009. But the prolonged economic meltdown has changed those plans, and the LP now anticipates committing within a range of $400 million to $500 million in 2009, says Louis Darmstadter, portfolio manager of the state pension fund.

So far this year, Ohio PERS has made only one commitment. The state pension fund made a $180 million pledge to mega-fund Hellman & Friedman Capital Partners VII.

Ohio PERS also invests in venture, buyout, distressed and secondary funds.

In other news, Ohio PERS is continuing its search for a deputy director of investments to oversee private equity, private real estate and external public markets. The previous head of alternative asset investments, Greg Uebele, left about a year ago to head private equity investments at Boeing. —Nancy Gordon