State Universities Retirement System of Illinois

Transcription

1 State Universities Retirement System of Illinois Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) (FAX) Investment Department To: Investment Committee From: Daniel L. Allen & Kimberly K. Pollitt, CFA Date: March 7, 2014 Re: Adams Street Partners 2014 Global Fund Background The total portfolio remains modestly overweight to the private equity asset class. The December 31, 2013, allocation of 6.5% slightly exceeds the 6.0% strategic policy target. At the March 2012 Investment Committee meeting, the Board approved the adoption of a three-year private equity funding plan. The funding plan included annual allocations of: Calendar Year Commitment Amount 2012 $300 million 2013 $100 million 2014 $250 million SURS objective is to continue making commitments to achieve the current private equity funding plan of $650 million in total during calendar years Thus far, the following commitments have been made, totaling approximately $400 million: In March 2012, the Board approved the first step toward implementing the funding plan with $100 million in commitments to the Adams Street 2012 Global Fund, L.P. ($80 million) and the Adams Street Global Secondary Fund 5, L.P. ($20 million). In October 2012, SURS committed approximately $125 million to the Pantheon USA Fund IX, L.P. ($85 million) and Pantheon Europe Fund VII, L.P. ( 30.5 million). In December 2012, the Board approved a $100 million commitment to the Adams Street 2013 Global Fund, L.P. In June 2013, the Board approved a $75 million commitment to Fairview Capital Partners, to focus exclusively on private equity funds with greater than 51% ownership held by minorities, females, or persons with a disability. Staff and NEPC are recommending a commitment of $100 million to the Adams Street 2014 Global Fund LP. SURS History with Adams Street Partners Beginning in 1990, SURS has committed over $1.5 billion to private equity investments with Adams Street Partners (Adams Street) and its predecessor organizations. Of this amount, as of September 30, 2013, $1.2 billion in capital has been called, $1.5 billion has been distributed back to SURS, and the existing market value of the investments for SURS is more than $510 million. Since inception, SURS has earned a net Internal Rate of Return (IRR) of over 23% on the total Adams Street portfolio.

2 Over the years, SURS has invested in several Adams Street Partners funds, including the Venture Partnership Acquisition Fund II, L.P., the Brinson Non-U.S. Partnership Fund Trust, the Adams Street Partners 2004 Non-U.S. Fund, and the Adams Street Global Opportunities Secondary Fund, LP. SURS began investing in the main Adams Street Partnership fund program, known as the Global Offering Program, in Additional commitments were made to the 2009, 2012 and 2013 Global Offering Programs. The Global Offering Program is structured to combine multiple separate funds into one investment. SURS is a member of the Advisory Committee for the Adams Street Partners Direct Fund. Adams Street 2014 Global Fund LP Adams Street s 2014 Global Fund is structured similarly to previous Global Offering Programs and is targeting allocations to the following funds: Fund Target Allocation U.S. Fund 50% Developed Markets Fund 25% Emerging Markets Fund 15% Direct Fund Up to 10% This offering will invest in a portfolio of private equity partnerships diversified by time, manager, geography, and subclasses including venture capital, buyout, mezzanine, subordinated debt, restructuring/distressed debt and special situation partnership investments. A portion of an investor s subscription to the Funds may be used to invest in secondary investments, which are, generally, partially funded interests in private equity funds purchased from another investor ( secondary investments ) and co-investments which are, generally, equity co-investments in buyout transactions ( co-investments ). Typically, investment commitments will be made over a three to four year period, and capital will generally be called over an eight to nine year period. The standard fee structure offered for participation in the 2014 Global Fund is approximately 60 basis points for a $100 million commitment. Adams Street offers fee discounts to investors that continue to participate in the global private equity program. Because of SURS long history with Adams Street and our continued participation in the global program, the effective annual fee paid by SURS would be approximately 41 basis points over the estimated 15-year life of the fund. The first close for the Adams Street 2014 Global Fund LP took place on December 20, 2013 for $410 million.

3 Key terms of the Adams Street 2014 Global Fund LP* are as follows: Target Fund Size: $800 million to $1 billion Target Investment Return: 12% net IRR; MSCI World Index + 4% Target Commitment Period: 3 to 4 years Capital Contributions: Made over 8 to 9 years; 10 days notice given Distributions Expected to be all in cash Fund Term 12 years plus three one-year extensions (Partnership Funds) 10 years plus two one-year extensions (Direct) Partnership Fund** Annual Fee Subscription Amount Management Fees: 100 basis points Up to $25 million 90 Over $25 million up to $50 million 75 Over $50 million up to $100 million 50 Over $100 million up to $150 million 40 Over $150 million Investors charged 50% of applicable annual fee in year 1 and 75% of applicable annual fee in year 2. Fees tail down to 90% of the regular fee in year 8, 80% in year 9, etc. Effective rate over 15-yr term: 67 bp for $50 mm subscription 60 bp for $100 mm subscription Carried Interest: 10% carried interest on secondary and co-investment purchases 20% carried interest on direct investments Credit for Prior Subscriptions: A credit amount for prior subscriptions will be applied to new subscription amounts and applied against the management fee schedule. Credit amount equals 75% of the 2013 subscription plus 50% of the 2012 subscription (including subscriptions to Adams Street Global Secondary Fund 5 LP) plus 25% of the 2011 subscription. Direct Fund Management Fees: The portion of a participant s subscription that is allocated to the Direct Fund will be assessed an annual fee of 2%. In addition, Adams Street Partners will receive a 20% carried interest on direct investments. Fees tail down to 90% of the regular fee in year 7, 80% in year 8, etc. Geographic Focus: 50% in the U.S. Fund, 25% in the Developed Markets Fund, 15% in the Emerging Markets Fund, and 10% in the Direct Fund Manager Commitment: Estimated to be $5 - $7 million (minimum 0.25% of Fund Size) *Adams Street 2014 Global Fund LP solely invests in the US Fund, Developed Markets Fund, Emerging Markets Fund and Direct Fund. **The term Partnership Fund refers to the US Fund, Developed Markets Fund and the Emerging Markets Fund. Diversity Please see the attached summary following this memo for information on diversity statistics at Adams Street Partners. SURS collects this information annually from investment service providers.

4 Recommendation SURS staff and NEPC jointly recommend: That a commitment of $100 million be authorized, contingent on successful contract negotiations, to the Adams Street 2014 Global Fund LP. Exhibit 3

5 ADAMS STREET PARTNERS, LLC AFFIRMATIVE ACTION As of June 30, 2013 % % Population Minorities Women Size Senior Management 11.1% 22.2% 9 Professional/Technical 23.4% 41.5% 94 Clerical 35.3% 100.0% 17 It is Adams Street s policy to provide employment opportunities to employees and applicants for employment in compliance with all applicable federal, state and local laws. No employees or applicants will be discriminated against with respect to the terms and conditions of their employment because of their sex, race, color, national origin, religion, creed, age, disability or handicap, marital status, or any other class protected by law. It is the intention of Adams Street Partners to adhere to both the spirit and letter of the laws and endeavor to provide all employees and applicants a work environment free from discrimination. All employees and applicants will be judged on the basis of legitimate, non-discriminatory criteria, including such factors as ability, performance, skills, knowledge and experience. This policy applies to all terms, conditions and privileges of employment, including hiring, training, placement, promotion, transfer, compensation, benefits and employee programs. Adams Street seeks to promote and maintain a positive and inclusive environment in which employees are encouraged and supported to reach their full potential. We believe it is important to recognize and reward superior performance, results and innovation and provide opportunities that foster creativity, teamwork and personal growth. Employees are encouraged to pursue additional educational growth opportunities through the firm s generous Tuition Assistance Program. Notable affirmative action efforts a. All employees have the opportunity to actively participate in cross-functional teams designed to address key functional areas of the firm as either a committee member or on a project basis. Employees are encouraged to demonstrate strong ownership of their development by broadening their knowledge base of core processes and working on alternative work assignments in areas of interest to them. This results in broadening their exposure to team members, developing experience in additional areas of our business and in their leadership skills. It also provides exposure to areas they may want to focus on for their continued personal development goals. Many employees took advantage of this opportunity by completing alternative work assignments or committee duties.

6 b. Senior members of the firm actively mentor other team members in sharing business and organizational knowledge. c. Adams Street provides tuition reimbursement to encourage staff to pursue professional educational interests toward their BA/BS, MBA, CFA or CPA certification. d. Our firm also supports initiatives in the private equity industry, by encouraging the introduction of and exposure to the field of investments to female and minority students by teaching classes at universities and participating in speaking engagements targeted at this future employee group. e. Adams Street supports the goals and mission of the Robert Toigo Foundation in fostering leadership development and career opportunities for diverse finance professionals.