Public pension fund officials are launching emerging private equity manager programs to reserve space in what they hope will be the stellar, sought-after funds of the future.
Among those starting such separate programs are the California State Teachers' Retirement System, Ohio Public Employees Retirement System and Los Angeles City Employees' Retirement System. Others, such as the Teacher Retirement System of Texas, are looking into investing with emerging managers through funds of funds.
Few corporate pension executives are making special allocations for emerging private equity managers, but many are dealing with the highly competitive buyout and venture capital markets by investing in smaller managers that focus on smaller deals.
Emerging managers are generally new private equity firms, both venture capital and buyout, that are making the rounds with their first funds. A number of the new venture capital firms are focused either on a certain region or a business sector.
Going with an emerging manager is a risky strategy. To ease the risks, most investors are sticking with firms formed by general partners that split off from established, name-brand firms or can show proven investment experience.
"There are a lot of generational issues with our general partners (of existing private equity firms), meaning they're getting older and going to step away from the business," said Kirsten Macintyre, a spokeswoman for Sacramento-based CalSTRS. The pension fund has $116.2 billion in assets, of which 4.7% is allocated to private equity.
"We want to be able to take a look at some of the interesting managers that may split off from those more senior firms … or new ones that are being created today," Ms. Macintyre said.
CalSTRS officials are in contract negotiations with INVESCO Private Capital, New York, which would manage an emerging private equity manager program for the system. Officials there hope to launch the program within the next 60 days, she said.