How to Make Nice with NYCERS

The pension fund’s PE chief on the value of good people—and good relationships

GPs embarking on a new fundraise will find the field of limited partners more limited than it’s been in years. Those accustomed to calling the shots now must work hard to accommodate limited partners—and they must work especially hard when doing business with powerful LPs like Barry Miller, who handles $16 billion in PE commitments for the New York City Public Employees’ Retirement System, the largest municipal public employee retirement system in the U.S.

Miller is now in the process of trimming the NYCERS roster of GP relationships in an effort to build a more focused portfolio and generate better returns. NYCERS recently took to the secondary markets and sold $1 billion worth of PE holdings.

But while it’s downsizing relationships, NYCERS is increasing its commitment to the asset class.

Miller says he looks at three fundamentals when considering a new fund.

The team. “Turnover is not a good thing,” says Miller, who prior to taking his current position was cofounder and managing partner at Nottingham Capital Management. When he considers a fund now as an LP, he wants to see a senior team that’s been together for a long time. “And when you look at the depth and breadth, you want to have people who are ones, twos and threes.”

The return. Investing is the easy part for GPs. “What you need to be good at is distributing money and selling companies,” Miller says. And to extend and deepen a relationship, GPs must also show that they executed on the strategy they outlined when they first met with the LP.

The realization. It’s not so much the amount of money an LP gets back, Miller says, whether it’s a partial realization or a full realization. “The real   story is IRR and multiple, because that’s what   people are marking off of. When you talk to people, everybody is top quartile. It’s one of the most amazing things—you’ve got an industry which is all top quartile.” So LPs like NYCERS are looking for consistency: firms that were not only top performers this year but last year and years before that. What’s more, not only are they pinpointing the best people and the best funds, LPs are tightening focus on the asset classes that give the best return.

And yet numbers are not the whole story. Miller sits down with GPs all the time and says he often meets managers with great track records who can’t raise money, while he meets other managers with so-so track records who have no problem pulling investment. The distinguishing factor is how a GP treats his LPs.

“One of the challenges that some GPs have is they get a little complacent with regard to their LPs,” he says. “Fundraising is not once every three or four years. Fundraising is nonstop… It doesn’t matter if you’re the best investor in the world—if you have no money to invest, nothing’s gonna happen.”