New York City Commits $600M to Ares, Trilantic, Palladium

New York City’s five pension funds made $600 million in fresh commitments to three private equity funds, according to a spokesman for the New York City Comptroller’s Bureau of Asset Management, which manages their assets. As of June 30, 2012, the five pensions had combined assets of $122 billion.

The three new commitments are $300 million to Los Angeles-based Ares Management’s Ares Corporate Opportunities Fund IV LP, $200 million to New York-based Trilantic Capital Partners’s Trilantic Capital Partners V LP, and $100 million to New York-based Palladium Equity Partners’s Palladium Equity Partners IV LP.

Ares Management’s newest fund closed in August, having reached its $4.7 billion hard cap, which was substantially more than its original $4 billion target. The firm needed just six months to reach that mark, and the results from prior funds may explain why.

The previous fund in the series, the 2008 vintage Ares Corporate Opportunities III LP, had garnered a net IRR of 25.5 percent and a 1.7x return multiple, according to New York City pension data from Dec. 2011. Funds I (2003) and II (2006) also performed well, with both of them delivering net IRR’s above 13 percent and return multiples of 1.6x. Fund IV marks the fourth time New York City’s pension system has contributed to Ares.

And the New York City pension system is not alone in its interest in Ares. Other pensions to have committed to Fund IV are the Florida State Board of Administration, which committed $200 million; the New York State Common Retirement Fund, which committed $150 million; the State of Wisconsin Investment Board and the New York State Teachers’ Retirement System, each of which pledged $100 million; and the New Mexico State Investment Council and Indiana Public Retirement System, each of which contributed $75 million.

The New York City pension system’s $200 million pledge to Trilantic’s Fund V is also notable. Trilantic, which was spun out from Lehman Brothers in 2009, is looking to raise $2 billion for its new fund. The vehicle has already gathered $100 million from the Pennsylvania Public School Employees’ Retirement System.

This is the third time the New York City pension system has pledged to a Trilantic fund. The previous fund, the 2007 vintage Fund IV, raised $1.9 billion, and has so far generated a 13.9 percent net IRR and a 1.3x return multiple, according to New York City data from Dec. 2011. Fund III, which closed in 2004, was returning a 13.4 percent net IRR and a 1.5x return multiple, according to the data.

The third and final fund that the New York City pension system committed to was Palladium’s Fund IV. The city’s pension system contributed to Palladium’s prior fund, the 2004 vintage Fund III. That fund was returning a net IRR of 15 percent and a 1.5x return multiple as of Dec. 2011.

Fund IV is looking to raise $800 million, so New York City’s commitment will represent an unusually large 12.5 percent share of the fund’s overall holdings. One other pension known to commit to the latest fund from Palladium was the Los Angeles Fire and Police Pension System, which pledged $10 million to the fund this month.

The five municipal pension funds that are managed by the Bureau of Asset Management are the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the New York City Board of Education Retirement System.

New York City’s municipal pension system has 6.8 percent, or $8.4 billion, invested in private equity. The system’s private equity target is 6.5 percent, and the system’s managers say they need to commit $2.5 billion to private equity each year just to maintain the program’s current size.