Alternatives briefs:New York, New Jersey execs eye infrastructure

NEW YORK — Raudline Etienne, chief investment officer of the $155 billion New York State Common Retirement Fund, Albany, and William Clark, director at the $80 billion New Jersey Division of Investment, Trenton, both see lucrative investment opportunities in infrastructure.

“We see opportunities not just in the U.S., but in New York-based infrastructure projects. There is much work needing to be done in New York alone,” Ms. Etienne said at a luncheon June 11 at the Consortium for Plan Sponsors and Minority Managers in New York. She added that the prospect for “double-digit” returns exists in the asset class.

Mr. Clark, also at the event, said the system was not limiting infrastructure investment opportunities to the existing toll-road and airport assets, but would look at more esoteric items such as cell-phone transmission towers, and power transmission and distribution systems. “When you're looking for inflation protection, these are great places to invest, but I prefer to see them offered in non-private equity structures,” Mr. Clark said. “Private equity structures charge fees that are too high, employ too much leverage and force you to exit the asset quicker then I'd like.”

BOSTON — New York City Comptroller William C. Thompson Jr. said he wants to make sure the New York City pension funds “are part of the development of clean-air technologies.”

He noted that the funds made their first such investment in March through a fund of funds with Pacific Corporate Group in renewable energy. Mr. Thompson made his comments June 10 at a conference, “Pension Funds: Investing to Build Strong and Sustainable Communities,” at the Harvard Law School.

Mr. Thompson oversees more than $100 billion in assets of New York City's five public pension funds.

On infrastructure, Mr. Thompson said: “It will be a positive space for us to invest in, but part of it is still being defined.” He said the New York City funds committed $150 million to an infrastructure fund in Northern Ireland.

The conference was organized by the Pension Funds in Urban Revitalization Initiative, sponsored by the Rockefeller and Ford foundations.

NEW YORK — About 49% of institutional investors plan to increase their allocation to alternative assets in the coming year, with 38% planning to increase their allocation to private equity, according to the Global Private Equity Barometer, a limited partner survey by private equity firm Coller Capital.

But the increases will come at a time when more investors expect weaker returns. Survey respondents indicated that private equity returns are down, with about 41% reporting returns over the lifetime of their private equity portfolios of 16% or greater, less than the approximately 45% that reported the same returns last year. About 74% of respondents indicated that style drift will impair future returns. The survey of 103 private equity fund investors was taken February through April by IE Consulting.

LandSource Communities Development LLC filed for Chapter 11 bankruptcy protection late Sunday in U.S. Bankruptcy Court in Wilmington, Del., confirmed Tamara Taylor, LandSource spokeswoman.

MW Housing Partners, a joint venture co-managed by MacFarlane Partners and a Weyerhaeuser Co. subsidiary on behalf of the $245.4 billion California Public Employees' Retirement System, Sacramento, owns a 68% stake of LandSource.

The pension system had slightly less than $1 billion committed to the joint venture, according to Brad Pacheco, CalPERS spokesman. Staff approved the investment last year of about $900 million in cash and properties to LandSource Communities, a joint venture between homebuilder Lennar Corp. and LNR Properties Corp. in exchange for the 68% interest but only a 50% voting control of LandSource. LNR and Lennar each pocketed $660 million after admitting MW Housing as an investor. Lennar and LNR Properties each retain a 16% stake.

At the time of the deal, LandSource owned 15,000 acres outside of Los Angeles, including 23,000 residential home sites. It also owned 700 acres of commercial land and other property in the same area. At that time, the property was valued at $2.6 billion; it was valued around $1.8 billion as of January, the most recent data available.

In a written statement, MacFarlane Partners said: “We regret that LandSource was forced to file for bankruptcy protection and hope that the parties will be able to reach an equitable solution. We agree with LandSource that, in the long term, this investment will be seen as a good one."

MacFarlane has invested in single-family residential land and development projects since 1995 on behalf of CalPERS. It also is a manager in CalPERS' urban development investment program, California Urban Real Estate Initiative, Mr. Pacheco said.

CalPERS said in a written statement that it expected the bankruptcy filing. “LandSource is one of thousands of investments of CalPERS, and it does not represent a large portion of the overall fund,” the fund said in the statement. “LandSource, with heavy investments in Southern California land, fell victim to the housing industry downturn.”

WASHINGTON — A tax bill that would have stopped managers of offshore hedge funds from deferring tax payments on their compensation failed to pass a key procedural vote in the Senate on June 10. Under a provision in the bill, offshore hedge fund managers would have to pay their taxes on their income immediately, rather than wait until they received their compensation. The provision was also included in a tax bill sponsored by Rep. Charles Rangel, D-N.Y., that was approved May 21 by the House. The bill could come up again, in the same form or with changes, because major business groups support key provisions in the bill, including one extending a tax credit for research and development.

BOSTON — Megabuyout funds have generated higher returns since inception than smaller buyout or venture capital funds, according to data from the State Street Private Equity index. Megafunds — those with more than $5 billion in capital commitments — earned a net annualized internal rate of return of 17.63% from the aggregate of all funds' inception dates to Dec. 31. By comparison, large funds' IRR was 13.88%, midsize funds returned 12.93% and small funds had 16.73%, said Larry Grosbaum, vice president, State Street Corp.

Overall, private equity — which includes buyout, venture capital, mezzanine, distressed debt and special situation funds — returned 3.18% for the fourth quarter 2007. The IRR of all private equity funds from inception to Dec. 31 was 15.18%, up from 14.26% for the period ended a year earlier, noted Gerard LaBonte, vice president, State Street Corp. and department head. The one-year private equity IRR was up nearly five percentage points to 21.17% from 16.88% for the year ending Dec. 31. The three-year annualized return was 22.73%, the five-year return was 23.69% and the 10-year return was 15.54%.

SYDNEY, Australia — Hedge funds will receive a further A$1 billion (US$939 million) from Australian superannuation funds over the next five years, when the average hedge fund allocation is expected to rise one percentage point to 3.5%, according to a University of New South Wales survey.

Investment & Technology newspaper reports that the survey, commissioned by the Australian chapter of the Alternative Investment Management Association, showed 70% of the funds already invest in hedge funds, while 90% are expected to have made the jump into the asset class in two to five years. Institutional managers were favored by almost 65% of respondents over boutiques. The survey found that boutiques were “not securing any worthwhile market share” and had attracted only 6% of allocations from the funds surveyed. The survey covered trustees from major super funds representing more than A$100 billion and was conducted in the first quarter.

BNP Paribas said in a statement June 10 that it is buying the equity prime brokerage unit of Bank of America Corp. Terms of the deal were not disclosed. The acquisition, described as “a very good strategic fit,” is expected to close in the second half of 2008. It will give France's largest bank access to more than 500 U.S. BofA hedge fund clients. The two banks also own U.S. primary dealers. BoA spokeswoman Melissa Kitlowski said the divestiture does not mark BofA's exit from the hedge fund business, which the bank will continue to serve “through investment ideas that will help them deliver returns, execution solutions and capital raising.”

NEW YORK — Commercial real estate returns in the U.S. were up 5.1% in the year ended March 31, according to Standard & Poor's S&P/GRA Commercial Real Estate indexes, which measure the change in commercial real estate prices in the U.S. The annual price appreciation of the national composite fell 1% in February and rose only 0.1% in March. Among the property sectors, warehouses reported a 0.9% gain in March. Apartments had the highest 12-month return, at 7.7%.

NEW YORK — UBP Asset Management is pitching two new long-biased hedge funds of funds to institutional investors. A distressed credit hedge fund of funds will invest in a concentrated portfolio of hedge funds that invest in residential mortgages, asset-backed securities, structured credit and corporate credit. The second hedge fund of funds will invest in 15 to 25 natural resources commodities-related hedge funds.

UBPAM has received commitments for $400 million for the distressed fund and expects to close it this summer, or when commitments reach $1.2 billion, according to a news release. The underlying hedge fund managers can take advantage of the fund's capital call structure when investment opportunities arise as the global credit market dislocation continues.

The natural resources fund will open July 1 with commitments of $110 million; the firm plans to close the fund around $1 billion. The fund portfolio manager, Shelley Goldberg, will invest about 20% of assets in commodities trading advisers that use computer systems for trading futures markets, said Armel Leslie, a UBPAM spokesman.

MIAMI — Bayside Capital, the distressed debt affiliate of private equity firm H.I.G. Capital, closed the H.I.G. Bayside II fund at $3 billion. The fund will invest in distressed companies with enterprise value of less than $400 million and acquire existing debt. Investors in the new fund include the $82 billion New Jersey Investment Council, Trenton, and the $34 billion Pennsylvania State Employees' Retirement System, Harrisburg.