NY Teachers Hires a Bunch of New Private Equity Managers in $1B Endeavor

Private equity made up 5.6% of the pension fund’s portfolio as of October, short of 6% goal.

The $121.8 billion New York State Teachers’ Retirement System is pushing heavily into private equity with nearly $1 billion in new commitments – despite legislators and stakeholders arguing against the industry.

The capital was distributed among private equity managers the pension fund has not allocated capital to before, according to records in the fund’s most recent monthly performance review dated December 2019.

Two commitments of $200 million were divided between North American-focused funds: Clearlake Capital Partners VI and Abbott Select EM Buyouts. Abbott’s vehicle is a buyout fund of funds, and Clearlake Capital’s is a middle-market buyout fund focusing on software, energy, technology-backed services, and industrials.

The fund then committed $150 million apiece to MBK Partners V, a buyout fund targeting a controlling stake in Asia, Valor Equity Partners Fund V, which focuses on companies poised for accelerated growth through operational enhancements, and a co-investment vehicle managed by HarbourVest.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

Of the 7.54% return that the portfolio generated in the fiscal year ending June 30, 2019, private equity generated 0.83%, lagging only behind domestic equity (2.61%) and Core + 5 (2.09%).

The asset class has attracted some negative publicity from high-profile legislators, such as Democratic presidential candidate Elizabeth Warren, who likened private funds to “vampires – bleeding the company dry and walking away enriched even as the company succumbs.”

The fund’s total private equity portfolio was valued at $4.5 billion as of October 2019, making up 5.6% of the portfolio, just shy of its 6% target. It’s the largest alternative asset class in the retirement system’s portfolio, and has a policy range between 2.6% and 8.6%.

Some of NYSTRS’ largest fund commitments in private equity include the following:

Investment

First Drawdown

Committed Capital ($m)

Paid-in
Capital ($m)

Distributed Capital ($m)

Multiple

Apollo Investment
Fund IX

3/15/2019

256 0020

23.38

.002

0.84x

Vista Equity Partners
Fund VI

6/28/2016

223

242.88

58.04

1.34x

KKR Americas Fund XII

2/27/2018

223

90.08

1.47

1.08x

CVC Capital Partners VII

6/30/2018

155.49

24.56

.526

1.23x

Green Equity Investors VII

5/12/2017

134

79.16

.530

1.17x

Source: New York State Teachers’ Retirement System (dated October 31 2019)

Other commitments in NYSTRS’s recent approvals were $75 million to EIV Capital IV, a fund focusing on natural resources, and the following EIV Capital IV Top-Up Fund, which will make investments alongside the flagship IV fund.

NYSTRS’s private equity cash flow is generally healthy, and most times shoots higher in a given year than spikes down. Its highest cash flow in the past 24 months peaked in November 2018, with approximately $100 million in positive net cash flow. By contrast, the lowest period in the past 24 months was about -$55 million in the following month, December 2018.

The fund has 220 active partnerships across 83 sponsors, approximately $8.8 billion in adjusted market value and $6.8 billion in unfunded commitments. From the portfolio’s inception to September 30, 2019, the portfolio returned a net IRR of 12.3% and a net multiple of 1.6x invested capital, according to a report from the pension.

Its private equity program is heavily exposed to small/medium buyout strategies (46%), followed by large/mega buyout (23%), and fund of funds, co-investments, and venture capital (7% each). Turnaround (6%) and secondary funds (3%) round out the portfolio.

The strategies are heavily leaning towards North American investments (72%), followed by Western Europe (18%) and the rest of the world (10%).

Related Stories:

Private Equity Funds Raise Nearly $600 Billion in 2019

CalPERS Falling Short of Private Equity Goals

Negative Sentiment Toward Private Equity Firms’ ‘Predatory’ Behaviors Impacting Investors

National Australia Bank Trustees Sued for Mismanaging Pension Assets

Class action suit on behalf of 330,000 members alleges breach of duties.

A class action lawsuit filed against the National Australia Bank group alleges that its subsidiaries MLC Nominees and NULIS Nominees mismanaged pension assets for its beneficiaries. The lawsuit is on behalf of more than 330,000 MasterKey Business Super and Personal Super account holders and claims the bank’s two trustees breached their duties and caused substantial losses to members.

Lawyers for the plaintiffs allege contraventions of superannuation law by MLC Nominees and NULIS. They contend the two firms left MasterKey Business Super and Personal Super default members in products with unnecessarily high fees and paying commissions to financial advisers that were banned in the low-cost MySuper product.

MLC Nominees was the trustee of The Universal Super Scheme (TUSS), which in July 2016 merged with others to become the MLC Super Fund, of which NULIS is the trustee. Originally, MLC MasterKey Business Super and MLC MasterKey Personal Super were products within TUSS. Following the transfer, the members of TUSS became members of the MLC Super Fund, with the trustee of the MLC Super Fund being NULIS Nominees (Australia) Limited.

The suit alleges that MLC Nominees and NULIS failed to exercise the degree of care, skill and diligence required of a prudent superannuation trustee. They are also accused of failing to perform their duties and to exercise their powers in the best interest of beneficiaries. It also alleges that the trustees did not give priority to the interests of beneficiaries where a conflict of interest arose.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

Andrew Watson of plaintiffs’ law firm Maurice Blackburn said the case will center on NAB’s failure to transfer more than A$6.3 billion of accrued default amounts (ADAs) over to the lower-cost MySuper product in a timely way, and in the best interests of superannuation fund members.

“The contraventions at the heart of this case resulted in NAB’s default MasterKey super members paying higher fees and commissions and receiving lower investment returns for periods of time, when they could have been in a cheaper, better overall MySuper product,” Watson said in a statement.

“This is another regrettable case of mismanagement in the superannuation sector,” Watson added. “The whole point of the MySuper reforms was to make sure that millions of everyday Australians who hadn’t made an active decision about their super were not losing money on higher fees and unnecessary or unused services.”

During a two-year government inquiry into the country’s banking, superannuation, and financial services industry that was concluded last February, the NAB was accused of multiple breaches of superannuation laws. Inquiry Commissioner Kenneth Hayne referred its conduct in relation to the transfer to MySuper to APRA for consideration of possible criminal or civil proceedings.

Hayne, a former justice of the High Court of Australia, said that NAB acknowledged that one of the consequences of the delay of the transfer was that members paid higher fees for longer than they would have had the ADAs been transferred earlier.

“Advisers, including advisers within the NAB Group, stood to benefit from this to the financial detriment of those members,” Hayne said. “Taken as a whole, the evidence shows that NAB and NULIS (and before NULIS, MLC Nominees) did not move with all deliberate speed to affect the transfers. I consider that they did not do that for fear of how advisers would react to the loss of commissions that would follow from the transfer.”

Related Stories:

Millennial Sues Australian Pension Fund over Climate Change Risks

Australian Regulator Loses Lawsuit Against Wealth Manager IOOF

Merging Australian Supers Get a New CEO

Tags: , , , , , ,

«