LP corner, week of Sept. 20, 2010

West Virginia looks for a few good shops

The $10.5 billion West Virginia Investment Management Board intends to pledge $285 million to private equity over the next 12 months, said Private and Public Equity Investment Officer Jim Herrington.

The plan is to make five to six commitments of $40 million to $50 million each, most likely to small to mid-market buyout shops, and one $25 million commitment to a venture capital firm.

Small and mid-market buyouts funds “have the most appeal at this time, but obviously a balanced portfolio is most prudent,” Herrington said.

The state pension fund has pledged $110 million to three firms so far in 2010. Most recently, the LP gave a $50 million slug to Wellspring Capital Partners V, earmarked for investments in North American companies with values of at least $75 million. Earlier this year, a $35 million pledge went to Mason Wells Buyout Fund III, earmarked for investments in small and lower-mid-market companies based in the Midwest with annual revenue of $25 million to $250 million; and $25 million went to Franklin Park Venture Series 2010, a venture capital fund of funds.

A relative newcomer to the private equity asset class, the West Virginia Investment Management Board began implementing its program in 2008. Past commitments have gone to turnaround shops Insight Equity and KPS Capital Partners; and mid-market firms LLR Partners, Odyssey Investment Partners and Riverside Partners, among others.

Consultant Franklin Park screens general partners for the LP, helps with due diligence and recommends managers. —Nancy Gordon

UK FoF in the hunt for smaller U.S. funds

U.K.-based fund-of-funds manager SL Capital Partners intends to commit $50 million to $75 million per year in the United States over the next couple of years, said Jamie Ebersole, senior investment director in the firm’s Boston-based office.

That yearly commitment amount will likely be divvied up among three to six general partners.

The firm currently has $100 million left to invest from its North American Strategic Partners 2008 fund, a $250 million vehicle. Although the firm would not comment on where it now stands in its fund-raising cycle, it has a history of raising new funds of funds every 18 months.

SL Capital currently sees funds of less than $1 billion as an attractive market segment and will look at vehicles as small as $150 million. The mix between re-ups and new relationships will be 50/50, said Ebersole. The firm’s focus is mainly mid-market buyout funds, but it will also do some secondary buyout deals, as well as committing to mezzanine, distressed debt and energy funds.

Emerging managers are definitely on SL Capital’s radar screen. To date, pledges have gone to spin-out teams, but non-spin-outs would be considered, as long as the team has a track record and a history of working well together. One spin-out that snagged a $10 million pledge is mid-market shop Excellere Partners, which spun out from KRG Capital.

Other GPs in its portfolio include Advent International, Apax Partners, Charlesbank Capital Partners, CVC Capital Partners, Hellman & Friedman, The Jordan Co., Sun Capital Partners and TowerBrook Capital Partners.

Besides running funds of funds, the firm also handles separate accounts, such as its €514 million ($654 million) mandate from the California Public Employees’ Retirement System to invest in European funds of less than €2.5 billion ($3.2 billion). —Nancy Gordon

Louisiana has room for private market pledges

The $11 billion Teachers’ Retirement System of Louisiana has $200 million to $300 million to spend on private equity during its new fiscal year, which began on July 1, said Director of Private Markets Maurice Coleman. That’s despite its actual allocation standing at 13.4%, above its target allocation of 10.0% to the asset class.

The state pension fund also has $300 million to $400 million to commit to real assets, which includes infrastructure, and $250 million to $350 million for debt-related commitments. During the current fiscal year, the limited partner has committed $100 million to Energy Capital Partners II, earmarked for investments in North American energy infrastructure.

In fiscal 2010, the LP committed more than $300 million to seven private market vehicles: distressed fund American Securities Opportunities Fund II ($50 million); distressed real estate debt fund Blackstone Real Estate Special Situations Fund II ($50 million); Enhanced Equity Fund II, earmarked for buyout deals and growth capital investments in lower mid-market companies ($35 million); Gilde Buy-Out Fund IV, earmarked for mid-market deals in Western Europe (€37.6 million or $48 million); mezzanine debt vehicle Merit Mezzanine Fund V ($40 million); OHA Strategic Credit Fund, earmarked for opportunities in stressed and distressed loans, bonds and other investments ($50 million); and Peninsula Fund V, for investments in subordinated debt and structured equity ($40 million).

The LP works with Hamilton Lane to opportunistically identify strategies that will enhance the portfolio in the private equity, real assets and debt-related asset classes. —Nancy Gordon

Manager of Harvard’s endowment fund disenchanted with PE

Jane Mendillo

, who manages Harvard University’s endowment fund, is disenchanted with private equity despite a 16.2% return in the asset class, according to a Wall Street Journal report last week.

The largest college endowment by assets nationwide is now valued at $27.4 billion, up from $26 billion a year earlier, the story said. Over the past decade, the Harvard endowment invested heavily in buyout funds but the field “has become more and more crowded—with capital, with managers and with investors,” Mendillo said in the story.

Returns will be more muted going forward while future investments in private equity will stress quality rather than quantity, Mendillo said. She anticipates that the endowment will reduce the number of active relationships within its PE and VC portfolio.

Real estate proved to be the biggest drag on the endowment’s performance, driving a negative 2.7% in real assets, which includes commodities and natural resources, such as timber, according to the report.