NY State Common to Emerging Managers: “We Have a Placement Agent Workaround”

I’m reporting from the Private Equity Analyst Outlook Conference at the Grand Hyatt in New York. Raudline Etienne, Chief Investment Officer for the New York State Common Retirement Fund, fielded some difficult questions about the fund’s ban on placement agents. She explained how the NY State Common’s emerging managers program will resolve the dichotomy of banning placement agents but remaining committed to new, smaller funds, which, she said, often perform the best.

On emerging managers: “We looked at the ‘big boys’ in our portfolio, and it’s the early funds–funds one through three-that we made the most money on. So, in time we will identify the next generation of emerging managers to back.”

The moderator asked how the fund might reconcile that with its recent ban on placement agents, a result of the pay-for-play debacle that has played out since this summer. Young funds, with fewer resources to dedicate to fundraising, often need placement agents the most. Etienne said the firm has enacted an emerging manager program to avoid missing out on new, small funds that often need placement agents to help it get a foot in the door. The program has $1 billion in capital and has committed $550 million.  Last year the fund backed four or five new emerging managers and it is “very possible” the firm will make another commitment this year, Etienne said. New York State Common hired Parish Capital Advisors and Bank of America to run the program in addition to hiring Tyson Pratcher to manage it internally. In her words:

“How many placement agents are in the room?” (Not a single hand goes up.) “Ok.

I don’t want to make a broad industry comment and I’m going to try to reign in my cynicism. I acknowledge that placement agents play a very significant role in the industry. However, it’s difficult to say that placement agents were critical for what was happening for us. In terms of the perceived potential disadvantage, on missing out on smaller or newer firms, for us, we want to mitigate that by making sure we have emerging manager programs throughout all of the asset classes. We use advisors. We’ve also hired two partners whose job is to listen, seek and make sure they have an open door for those managers. For me, that program mitigates that risk. Nothing’s perfect. There are other things we do for outreach. We have an emerging manager program in Albany that we’re rolling out to other asset classes. We have someone on staff (Pratcher) whose job it is to go around and meet with emerging managers. We’ve always had a person like that in our long-only portfolio, now we have in private equity, and we may roll it out to hedge funds as well.”

So I’m curious if anyone has had experience with this program, and while its still relatively new, I’m interested to know if its working. Have any of you emerging managers out there tried to get a meeting with NY State Common, Bank of America or Parish Capital Advisors? Is this new program giving you a fair shot at a mandate, or at least a comparable one that say, a placement agent would get you?