Up-and-Coming LPs

A number of notable LPs are taking the plunge into co-investments for the first time or are significantly expanding their commitment to the asset class.

Hong Kong Monetary Authority, #7 (China; ~$327B total assets):
HKMA’s private equity allocation is housed within the inflation-mitigating long-term growth portfolio. Launched in 2009, HKMA’s PE investment activities focus on the energy, healthcare, and telecommunications sectors.  Due to the specialized expertise required for investing in these sectors, HKMA uses external managers and deploys its private equity allocation through fund investments and co-investments. As of the end of 2012, PE comprised approximately $6B or 2 percent of the overall portfolio. Co-investments are not separately disclosed but appear to be skewed toward private equity real estate investments. As HKMA builds out its PE investment efforts, we view it as likely that the organization will also seek to increase its co-investment activity.

• California Public Employees’ Retirement System, #9 (U.S.; ~ $282B total assets):
CalPERS has opportunistically embraced co-investments. Including unfunded commitments, CalPERS has more than $51B exposure to private equity. In recent years, the U.S.’s largest pension fund has made several changes, including selling non-core assets through secondary transactions and changing its model for private equity advisor relationships and funds-of-funds. In 2013, the pension fund also broadened its co-investment policy. Co-investments are now allowed up to the amount committed to fund manager, essentially allowing CalPERS to invest up to 50 percent of its PE portfolio through co-investments. CalPERS is actively recruiting for its PE co-investment/direct-investment team.

• British Columbia Investment Management Corporation, unranked (Canada; ~$93B total assets):
BCIMC plans to commit CAD$1.2B to PE annually, as well as expand its existing co-investment activity. The organization has been investing in PE since 1995, with a 4.5 percent target allocation to the asset class. Its historical co-investment activities have included making commitments to co-investment funds managed by HarbourVest and Adams Street, as well as direct investments (heavily weighted toward energy and infrastructure).

• State of Wisconsin Investment Board, unranked (US; ~$86B total assets):
SWIB has a long track record of PE investing, spanning several decades, including a period when it had an internally managed co-investment program from 1986 to 2003. However, its $10B-plus exposure to PE has not included co-investments apart from certain in-state investment programs and a relationship with Northwestern Mutual Capital that was discontinued in 2011. This is changing, according to reports in 2013 that the Madison, Wis.–based pension fund was seeking to build a co-investment program. In early 2013, SWIB also began recruiting an experienced investment professional who would be “responsible for establishing, building and managing an internal private equity co-investment program” at SWIB. SWIB’s investment policy permits co-investments but does not permit direct investments where SWIB is the lead investor.

• North Carolina Retirement Systems, unranked (US; ~$83B total assets):
The NCRS Investment Management Division manages assets of several NC public pension plans, including the Teachers’ and State Employees’ Retirement System, the Consolidated Judicial Retirement System, the Firemen’s and Rescue Workers’ Pension Fund, the Local Governmental Employees’ Retirement System, the Legislative Retirement System, and the North Carolina National Guard Pension Fund. NCRS first received legislative approval to invest in PE in 1989, accumulating about $3B of PE NAV and another $2.5B+ of unfunded commitments, and it has co-invested locally through the North Carolina Innovation Fund. However, the plan has yet to launch a full-fledged co-investment program. Such a program has been on the plan’s agenda for discussion throughout 2013 and has slid into the 2014 initiatives.

• Ohio Public Employees Retirement System, unranked (US; ~$80B total assets):
OPERS, with its $7B of PE NAV (not including unfunded commitments), has stated that it plans to continue building out its co-investment program. The plan is permitted to invest up to the greater of 1 percent of private equity market value or $75M per co-investment. OPERS also committed $350M to Lexington Capital Group’s third co-investment fund last year.

• Virginia Retirement System, unranked (U.S., ~$60B total assets):
VRS was seeking to hire a senior-level professional to head its co-investment activities last year, and Richard Wiltshire joined the pension fund’s investment team soon afterwards. Wiltshire comes from a direct-investment background, having most recently been at neighboring middle-market buyout firm Quad-C Management. VRS has a hefty 12 percent new target allocation for PE. Most of the pension fund’s historical investments in private equity have been through limited partnerships.

• Universities Superannuation Scheme, unranked (U.K., ~$58B total assets):
The USS has a 10 percent allocation to PE and has set goals of investing $1B per year and reaching a balance of 50 percent funds/50 percent direct investments. Its current PE portfolio has approximately $5B of NAV ($10B including unfunded commitments). The plan first made a concerted effort to pursue PE co-investments in 2008. As of the end of last year, USS had co-invested $200M in more than 20 transactions. Going forward, USS plans to invest at least $1B annually in PE and private debt co-investments, with a minimum investment size of $60M.

•Alaska Permanent Fund Corporation, unranked (U.S., ~$50B total assets):
APFC has a 12 percent allocation to private markets (encom-passing PE, private credit, and infrastructure), including a 6 percent allocation to private equity. The sovereign wealth fund only received permission to invest in PE in 2004, and in the past couple of years it has made a strong push into co-investing for both its PE and infrastructure investments. Last year, APFC announced its intent to invest $450M in co-investments during the 2014 fiscal year, through both third-party managed co-investment funds ($250M) and internal co-investment decisions alongside existing fund investments (up to $200M). To implement its internal co-investment strategy, APFC also sought to hire a senior portfolio manager who would “have responsibility for evaluating existing and prospective private market fund investments and developing the fund’s Private Equity Co-Investment program.” APFC announced at the outset of this year that it had hired Stephen Moseley to fill this position. Moseley previously managed co-investment for Pacific Corporate Group and PCG spinout StepStone Group.