Domestic emerging managers are the latest focus in the private equity portfolio of the $239 billion CalPERS, with the fund searching for a new investment vehicle, most likely a customised fund-of-funds, to invest in partnerships that may be under-capitalised.
Senior investment officer of the alternative investment management (AIM) program, Réal Desrochers, in the job for little more than one month, said the fund was looking for partnerships whose principal officers have individual experiences and underlying investment strategies to generate earnings in the top quartile of private equity investments.
“This entails partnerships or direct investments, deal sourcing, analysing, screening, due diligence, negotiating and closing transactions, monitoring and exiting investments,” he said.
The manager will invest on behalf of CalPERS in a 7-10-year relationship across the private equity spectrum, including venture capital, expansion capital and leveraged buyout transactions.
The AIM, which has a 14 per cent target allocation, invests through partnerships, directly and through fund-of-funds.
The new investment vehicle will complement other emerging manager initiatives in the AIM program – it has domestic and global emerging manager initiatives – to diversify portfolios and generate returns by partnering with managers and funds that could eventually join the core AIM line-up of partners and funds.
There are literally hundreds of manager relationships in CalPERS’ AIM program. In the current strategic plan, capital commitments to funds generally range from $75 million to $100 million.
Emerging managers typically aim to raise first-time or second-time funds between $100 and $200 million, but there is no designated commitment at this stage for any new investment vehicle for domestic emerging managers that might join the AIM program.
A commitment to any individual fund should represent 20 per cent or less of aggregate commitments by all investors. Therefore minimum fund sizes for a direct relationship need to be $375 million or greater.
The AIM program already has a number of partnerships with various fund-of-fund managers focused on exploring new opportunities in niche private equity markets. They include:
- Sacramento Private Equity Partners, which is managed by Oak Hill Investment Management and primarily targets private equity opportunities in top-quartile venture capital, small and middle market buyout, and distressed opportunity funds. The entity will opportunistically invest in secondary transactions.
- California Emerging Ventures, which is managed by Grove Street Advisors. Grove Street offers custom tailored fund of funds to meet the client’s specific needs. Grove Street covers the full range of private equity including venture capital, buyouts, restructuring and energy.
- The Golden State Investment Fund, which is the second phase of CalPERS California Initiative Program. GSIF, managed by Hamilton Lane, will seek compelling private equity investment opportunities, both partnerships and co-investments, focused in the State of California.
- Centinela Capital Partners, which is an independent alternative investment management firm that provides discretionary services in alternative investments, with an emphasis on discovering new opportunities, particularly emerging managers.
- On behalf of CalPERS, EMAlternatives invests in funds active in global emerging private equity markets, including Australasia, China, India, Japan, Korea, and the rest of emerging and developed Asia; Central & Eastern Europe and the former Soviet Union; Latin America; and Africa and the Middle East. EMAlternatives identifies top-performing teams in each of the key markets, and assists CalPERS with developing direct relationships with these managers over time.
- 57 Stars, which is an investment manager focused on partnership and co-investment in select private equity markets outside of the United States and Western Europe including Australia, Central and Eastern Europe, China, India, Israel, Japan, Latin America, Mexico, pan-Africa, pan-Asia, Russia, and South Africa.
- The CalPERS Clean Energy and Technology Fund, which is dedicated to investing across the spectrum of the global clean energy and technology value chain.
Since its 1990 inception to December 31, 2010, the AIM program has generated $17.1 billion in profits for CalPERS. The fund says that because of the portfolio’s young, weighted-average age 5.1 years, this amount will continue to grow as the portfolio matures.
At the end of 2010, the AIM program had a total exposure of $50 billion.