private equity | Pension360

CalPERS Looks to Cut Two-Thirds of Private Equity Managers

As part of its quest to reduce overall costs, CalPERS announced on Monday that the fund would be cutting the number of private equity managers it employs.

The cuts could be deep – the pension fund currently has 291 such managers, but that number could fall to below 100.

Video: Pension Reform and the Implications for Private Equity

Kathleen Kennedy Townsend, Managing Director at Rock Creek Group, gave this presentation on pension reform, retirement security and what it means for private equity. The talk was filmed at the 2014 Women’s Private Equity Summit.

LACERA Raises Private Equity Target, But Fulfilling It Will Be Challenge

The Los Angeles County Employees Retirement Association in 2014 increased the amount of money it plans to invest in private equity this year, from $1.8 billion to $2 billion.

Over the next few years, the fund plans to bring its target PE allocation up to 11 percent of its portfolio, up from 8.7 percent in 2014.

But raising the target allocation is easy. Fulfilling it will be more challenging, as many pension funds, including LACERA, found out in 2014.

From the Wall Street Journal:

[LACERA] fell short of its private equity pacing target in a year when a record number of funds reached their hard caps and investors were forced to scale back commitments or were turned away at the door.

“Certain realities exist in the current private equity environment that challenge staff’s ability to effectively deploy $1.8 billion to $2.0 billion of capital annually,” a memo penned this month from investment staff to trustees and reviewed by Dow Jones stated.

That’s how much Lacera projects is needed in private equity commitments each year for it to grow its private equity allocation to a targeted 11% of its portfolio mix in the next four to five years. The pension system had 8.7% of its portfolio in private equity holdings as of Sept. 30. The pension fund has in the past stressed that it does not want to “dilute the quality of general partner relationships nor the thoroughness of the due diligence process just to hit the target.”

Lacera’s combined commitments in 2014 fell short of its projected pacing figure, but reflects the pension fund’s goal “to not dilute the quality of general partner relationships nor the thoroughness of the due diligence process just to hit the target.”

LACERA manages $47 billion in assets.

Photo jjMustang_79 via Flickr CC License

Central Player in CalPERS Bribery Case Is Too Sick For Trial, According to Lawyer

Alfred Villalobos, the ex-placement agent on trial for bribing CalPERS’ chief executive, is too sick to stand trial, according to his lawyer.

The attorney is pushing for a postponement of the trial, which was set to begin in late February.

Villalobos is 71 years old and has reportedly been in and out of the emergency room in recent months.

From the Sacramento Bee:

In a court filing Monday, attorney Bruce Funk said Villalobos has had “numerous stays in the emergency room” in the past few months. “Mr. Villalobos is not physically or mentally able to participate in his defense, or to even sit through a trial,” Funk wrote.

[…]

In the court filing, Funk said his client was “incoherent” the last time they spoke on the phone, last Wednesday.

Funk wouldn’t go into details, but Villalobos, 71, has clearly been in declining health. His trial, originally set for last March, was postponed after lawyers said he was suffering from various heart ailments and neurological problems.

When he appeared in court last July, the Reno businessman’s breathing was labored and he walked with two metal canes.

Villalobos is accused of paying $250,000 in bribes to Fred Buenrostro, the former CEO of CalPERS, in an effort to steer pension fund investment dollars to Villalobos’ private equity clients. A former California Public Employees’ Retirement System board member, Villalobos earned $50 million in commissions representing clients seeking CalPERS investments.

Fred Buenrostro, former CEO of CalPERS, pled guilty to accepting Villalobos’ bribes.

Villalobos faces up to 30 years in prison.

Photo by Truthout.org via Flickr CC License

CalPERS Seeks PE Portfolio Manager

CalPERS is looking to hire a private equity portfolio manager (the listing can be accessed here).

The salary range is $11,666.66 – $17,500.00 monthly.

More information from the listing:

Duties include but are not limited to:

* Evaluate performance of legacy partnerships and co-investments

* Lead investment strategies to monetize investments to include secondary sales and monthly calling efforts

* Attend annual meetings, advisory board meetings and conduct quarterly monitoring calls

* Manage and monitor workload for investment professional in his/her reporting structure

Minimum Requirements and Experience:

* Bachelor’s degree in business administration, economics, finance, or a closely related field

* Five years of broad and extensive investment management experience for a major financial institution or firm, or government agency, including some experience leading or coordinating professional staff, and review of large and varied investment portfolio

* 3 years experience restructuring investment commitments ( private equity or equity strongly preferred, other private market experience such as real estate would be relevant in a commingled fund environment.)

* 5 years experience managing people

Desirable Qualifications:

* CFA

* Previous experience working for pension, foundation or endowment fund

* Previous experience leading and mentoring staff

* Ability to work well in a collaborative team environment

* Highly motivated self-starter

CalPERS is the nations largest public pension fund.

Photo by Nathan Stephens via Flickr CC License

Private Equity Firms May Inflate Returns, Claims Research

Private equity firms now manage hundreds of billions of dollars of public pension money, in part because the asset class advertises its ability to deliver strong returns without the volatility of the stock market.

Due to the illiquid nature of private equity, the industry’s return figures are often estimates – a valuation of what the firm’s investment would have sold for, had it been sold.

But new research from George Washington University suggests that private equity firms inflate the on-paper value of their investments.

More details from the International Business Times, which received an advanced look at the soon-to-be-released research:

Now comes new data from [investment banker Jeffrey] Hooke and George Washington University’s Ted Barnhill and Binzi Shu that purports to prove mathematically that the private equity industry’s books are misleading.

The researchers essentially created a portfolio of publicly traded companies that they say closely resembles the kinds of privately owned companies that private equity investors buy. The researchers then weighted their public companies’ returns to reflect the same level of debt that private equity firms typically impose on their portfolio companies.

The researchers argue that their index of public companies should show roughly the same returns as the private equity industry. “All things being equal, an auto parts company that is publicly traded will have the same value as an identical auto parts company that is privately owned,” Hooke, who is an executive at Focus Investment Banking, said.

Instead, though, the private equity industry’s stated returns were noticeably less volatile than the publicly traded companies’ returns. The researchers assert that the private equity industry uses its latitude to self-value its own portfolios in order to make their returns look “smoother” than they actually are. “Investors may have been unfairly induced into placing monies into these investment vehicles,” they conclude.

The CalPERS website says “there are no generally accepted standards, practices or policies for reporting private equity valuations.”

The SEC has taken notice, as well:

At the Securities and Exchange Commission, a top enforcement official in 2013 declared that the private equity companies that the agency had been scrutinizing were “exaggerat(ing)” the reported values of their portfolios. That declaration followed the release of studies by academic researchers finding evidence that valuations were being manipulated. The SEC subsequently reported that it found “violations of law or material weaknesses in controls” at more than half of the private equity firms that the agency investigated.

Read the full IBT report here.

Photo by Roland O’Daniel via Flickr CC License

Ontario Teachers’ Pension Buys Chain of Animal Hospitals for $440 Million

The Ontario Teachers’ Pension Plan has bought PetVet, a chain of veterinary practices, from private equity firm Catterton.

The deal was worth $440 million, according to the Wall Street Journal.

More details from the WSJ:

The sale is the latest in a string of transactions in the pet-care and pet-products market, where increased consumer spending has paved the way for premium deal prices.

Betting that there is still growth ahead for PetVet, a Westport, Conn., business first backed by Catterton in 2012, the firm is rolling $40 million of the proceeds from the sale into the transaction alongside OTPP, according to the memorandum.

Similar to a physician or dental network, PetVet’s business model focuses on buying veterinary practices and then providing back-office services such as payroll, marketing, accounting and human resources.

The $440 million price tag translates into roughly 11 times PetVet’s earnings before interest, taxes, depreciation and amortization, a hefty multiple even by 2014’s standards and an indication of the value investors see in the pet market.

[…]

PetSmart, PetVet and National Veterinary Associates have been the beneficiaries of a sharp increase in the amount of money spent on pets in the U.S., a figure which has tripled in the past two decades, increasing annually even through the global economic downturn.

In 2014, Americans spent an estimated $58.51 billion on their pets, with more than a quarter of that cost going toward veterinary services, according to the American Pet Products Association, a trade group.

Spending on vet care increased roughly 6% to $15.25 billion in 2014 from $14.37 billion a year earlier, according to the association’s estimates.

The Ontario Teachers’ Pension Plan manages $140 billion in assets.

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Japan Pension Begins Search For New Money Managers

The end of 2014 was a busy period for Japan’s Government Pension Investment Fund (GPIF). The fund overhauled its asset allocation and will be putting 50 percent of its assets in equities while cutting its bond holdings.

In a related move, the fund will be looking for a new crop of money managers to handle investment duties, and the GPIF is willing to shell out more money for better talent.

Businessweek reports that the GPIF could begin recruiting managers officially next month. From Businessweek:

Japan’s Government Pension Investment Fund may use a private seminar next month to inform potential job applicants as part of its efforts to recruit professional money managers to the world’s largest investor of retirement savings.

Yasuhiro Yonezawa, chairman of the investment committee at the $1.1 trillion fund, is expected to discuss GPIF’s reforms and the qualifications it wants from future staff, said Nobukiyo Akiyama, an executive at Kotora Co., a Japanese executive search firm that’s organizing the Feb. 13 event.

GPIF is seeking to hire experienced investors as it shifts to riskier assets from bonds in anticipation of faster inflation under Prime Minister Shinzo Abe. Hiromichi Mizuno, a former partner of London-based private-equity firm Coller Capital Ltd., became its first chief investment officer this month.

“The fund will have to obtain professionals that have know-how and skills for private equity, venture capital and real-estate investments following the reform, besides back-office staff,” Akiyama, manager of the chief executive officer’s office at the Tokyo-based executive search firm, said in an interview yesterday. “That’s a very specialized area.”

Kotora, which has 20,000 job seekers registered with the firm, plans to invite 80 individual and corporate clients from the asset-management industry to the seminar, which will be held in Tokyo, Akiyama said.

[…]

The pension fund won flexibility last year to pay higher salaries to attract investment staff instead of government officials.

The GPIF plans to hire about 40 new managers, according to Businessweek.

The fund manages $1.1 trillion in assets and is the largest pension fund in the world.

Photo by Ville Miettinen via Flickr CC License

Pennsylvania PSERS Offloads Nearly $2 Billion of Funds-of-Funds As Part of Plan to Decrease PE Exposure

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold its stake in 17 buyout funds-of-funds. The stakes were collectively worth $1.75 billion, and the sale was part of a plan to reduce the system’s private equity portfolio from 16 percent of assets to 15 percent.

From Chief Investment Officer:

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold a $1.75 billion package of private equity investments to secondaries player Ardian.

The deal—one of the largest in 2014—included 17 limited partner stakes in private equity buyout funds-of-funds. Most of these investments focused on US large cap and middle market spaces, according to the public relations firm representing Ardian.

The $53 billion pension fund and Paris-based secondaries firm closed their transaction last month.

“PSERS is endeavoring to reduce its exposure to private equity to 15% of the fund’s size,” said the pension’s CIO James Grossman. “The depth of the secondary market makes possible a large asset sale that will bring us closer to our long-term target.”

Private equity accounted for 16.3% of the fund’s total portfolio as of September 30, 2014, according to PSERS’ documents. The pension began shedding exposure to the asset class last summer, reducing its total portfolio value by $415 million between June and September.

Last month’s deal with Ardian would bring PSERS’ private equity allocation down to roughly 12.7%.

Pennsylvania PSERS manages $53 billion in assets.

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Recruiting Private Equity Talent Getting More Expensive For Pension Funds

As more pension funds participate in direct investing or co-investing ventures, they find the need for private equity experts on their staff.

But the cost of getting that talent is growing: a recent survey found that almost 50 percent of pension funds are having to shovel out higher salaries to recruit and retain private equity employees.

From the Financial Times:

Private equity employees are commanding higher wages as increasing amounts of money are pushed into the asset class.

Almost half of North American limited partnerships (pension funds and funds of funds) are having to increase their pay scales to recruit staff, according to a survey of 114 investors and private equity funds by Coller Capital, which invests in the secondary private equity market. The European market lags behind somewhat, with 30 per cent of LPs increasing salaries.

“The industry has done very well over the past couple of years, with very strong distribution,” said Michael Schad, a partner at Coller Capital. “As there is more demand from employers, wages can go up.”

As well as the industry expanding, investors are entering more directly into the asset class, either co-investing with general partners or building their own private equity investment capabilities. “This requires different skill sets,” said Mr Schad.

The survey also asked where funds were looking to recruit PE employees:

While more than half expect to recruit employees from other LPs, almost as many (46 per cent) will look for talent at alternative asset managers that are not private equity firms. A third will take on former investment bankers, but just a quarter hope to attract workers from general partners (private equity firms).

Increasing remuneration may be good news for the LPs, according to remarks made by Klaus Ruhne, partner at ATP Private Equity Partners, during a round-table held by private equity consultant Triago in November.

“What is more important than the size of teams, or the value of assets under management, is the frequent lack of generous long-term incentive plans for limited partners,” he said. “Without a restructuring of LP compensation, we will continue to witness an inordinate amount of inconsistency and even foolishness when it comes to how capital is deployed and how limited partners are organised.”

The survey was conducted by Coller Capital.

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