WILMINGTON, Del. - The $14 billion pension fund of E.I. du Pont de Nemours & Co. Inc. plans to dramatically increase the venture capital in its private equity program, said Carmen Gigliotti, managing director, DuPont Capital Management Private Markets Group, Wilmington.
Plan officials will raise the venture allocation to 15% of the $1.12 billion private equity program over the next three to four years, from its current 2% allocation, Mr. Gigliotti said in an interview.
"It's a great time to be investing in venture, as the economy turns around," he said, noting he favors early stage investing. Historically, DuPont's private equity strategy focused more on value-oriented investments than venture capital, which helped it avoid steep losses in the last two years. The program has achieved an annualized internal rate of return just above 15% since its inception 10 years ago, about 50 basis points more than the Private Equity Performance index, Mr. Gigliotti said.
The venture investments probably will replace distressed buyouts because "distressed investments are cyclical and there are likely to be fewer good ones available as the economy recovers," he said.
The program traditionally has avoided large buyout funds and focused more on middle-market funds, which also has helped results, Mr. Gigliotti said, explaining that smaller funds tend to be less efficient, which can translate into excess returns.
DuPont also likes secondaries and has been investing in more of them in the last few years, both through funds and buying individual portfolios from banks and other institutions as they have come on the market. It has acquired several venture partnerships that way, at discounts of as much as 20%.
Wilton Private Equity Fund I, DuPont Capital Management's $240 million private equity fund of funds that closed in November 2001, uses a similar strategy to that of the pension fund's private equity program, Mr. Gigliotti said. The Wilton Fund is a joint venture with State Street Global Advisors, Boston, which assisted with the marketing. The DuPont pension fund contributed $100 million to the fund of funds.
The fund also invested an additional $450 million in the same 20 partnerships in which the fund of funds invested, Mr. Gigliotti said. Other investors in the Wilton Fund include the $800 million Macomb County Employees Retirement System, Mount Clemens, Mich.; $720 million pension fund of State Street Corp., Boston; and $144 million pension fund of the New Bedford (Mass.) City Retirement System.
About 20% of the capital is still being invested in co-investments and secondaries. The remainder has been committed to some 20 partnerships, most of them middle-market buyout funds between $300 million and $700 million, that invest an average of $10 million to $40 million in 15 to 20 companies. The rest is divided among international, distressed, special situations, mezzanine, secondaries and venture funds. The portfolio includes buyout funds from American Securities Capital Partners LP, Kohlberg & Co. and Castle Harlan Inc., all of New York; Sun Capital Partners, Boca Raton, Fla.; Quad-C Management Inc., Charlottesville, Va.; and venture funds from Forward Ventures, San Diego, and Globespan.