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.
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 | Distributed Capital ($m) | Multiple |
Apollo Investment | 3/15/2019 | 256 0020 | 23.38 | .002 | 0.84x |
Vista Equity Partners | 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%).
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