INDIANAPOLIS - With a bill pending in the General Assembly to ease investing in private equity and other alternative investments, the Indiana Public Employees' Retirement Fund is plotting the latest step in its effort to be recognized by money managers as a sophisticated investor, as its $10 billion in assets should command.
"When vendors come in and talk with me, they don't view us as a diversified 21st century fund," said Patricia J. Gerrick, chief investment officer.
"The fund has not been in a position to get the attention of the top-tier firms," she said. "There are a lot of investing ideas floating out there, and we'd like to be able to take a look at them.
"We want to have the attention of the best managers. So the world should view us as we are now, not as we were in 1997," when the fund made its first investment in equities - all passive - after a 1996 voter referendum.
E. William Butler, executive director, added, "We continue to go through change. We are a different fund from what we were five years ago."
Because of the efforts to diversify, Ms. Gerrick said, "The shop is open and we are ready to do business. We are now set up to do business the way our peers do."
For 2002, it plans to search for:
* managers for a concentrated domestic large-cap equity portfolio, possibly hiring more than one. It hopes to proceed with the search between March and July and plans to allocate 10% of total assets to the area.
* global active growth equity managers, and possibly active core global equity managers, as well. It expects to do the searches this summer and may allocate about 6%of total assets to the overall global equities area.
* indexed and enhanced index equity managers, both domestic and international. This search, which would follow a review of the fund's current managers, likely would be between March and July.
* alternative asset managers, including private equity. Trustees allocated 5% of assets to alternatives.
The staff is well under way with its alternative investment process for evaluating potential managers and investment partnerships, not waiting for passage of enabling legislation. Mr. Butler and Ms. Gerrick expect the bill to pass, allowing the pension plan to invest in commingled funds and thus opening the way for limited partnerships and other pooled investment vehicles. Now the fund is limited to separate accounts, so the only way it can access private equity is by direct investments or becoming a general partner, approaches fund officials don't want use.
Ms. Gerrick said the fund would be ready to make private equity and other alternative investments right after July 1, the effective date of the legislation, if it is enacted.
"We are evaluating investment ideas now for programs that will close in the later part of the year," Ms. Gerrick said. "Alternatives are a very opportunistic investment; we won't do RFPs."
The fund will split its 5% alternatives allocation as follows: 70% in domestic private equity, consisting of 17.5% venture capital, 42.5% buyouts and 10% debt-related investments; 10% in international private equity, allocated in the same proportions as the domestic slice; 5% absolute return strategies; 5% real estate investment trusts; and 10% opportunistic real estate.
Trustees recently hired Strategic Investment Solutions Inc., San Francisco, for a one-year contract to assist in searching for and evaluating alternative investment proposals. The new contract was awarded after the firm had educated trustees about alternatives and helped develop a policy.
Details of the publicly traded securities manager searches planned for this year haven't been completed yet, awaiting the trustees' issuance of requests for proposals. The fund's existing consultant, William M. Mercer Investment Consulting Inc., Chicago, will assist in these searches for managers of public-market securities.
In terms of the fund's review and searches later this year for index and enhanced index managers, Ms. Gerrick said, "It doesn't mean we are unhappy with the managers we have. We just want to open it up."
In early January the fund began a search for growth and value equity managers to run $1.3 billion in active domestic small-cap, midcap and "smid" (small-cap and midcap) portfolios. The fund, which is keeping the search open until Jan. 30, hopes to make a selection by March.